Hi - I have a client who last year carried out a lot of work upgrading their showroom. One of the suppliers supplied the materials to them at the usual price but agreed to give a discount upon each order placed from then on. At the end of last year no rebate was received as no orders had been placed with them so the full amount was capitalised and AIA was claimed on this amount. In this financial year, a number of orders have been placed with the supplier and a rebate has been received as agreed. This however, in reality, reduces the cost of the asset that was capitalised last year and also means that the AIA claimed was too high.
Firstly, I am presuming that the amount of rebate will have to be shown as a balancing charge? And secondly I am struggling to decide how to show this in the fixed asset note to the accounts as this is not a disposal and I am thinking it may have to be a revaluation?
Maybe I'm not understanding fully your point. But surely the discount is on the new order, this year, and not a discount on an order that what bought and paid for last year?
Hi - the discount is on the invoice for the new orders yes, but it relates to the purchase last year. Lets say the upgrade last year cost £2000, the supplier is giving us 5% off each order this year until the £2000 is recouped, so in my mind the cost of sale for the new order should be grossed up by the discount as this wouldn't ordinarily be given. If I show the cost of sale net of the discount, I don't believe that I am showing the true cost of the materials as were this order to be placed after the £2000 has been fully recouped the material cost would be higher as there would be no discount given. I hope this makes more sense - perhaps I am making life more complicated than it needs to be!
I think you are making things more complex. personally, I would treat the discount as any other discount received. I understand that the discount is because of the purchases last year, but I disagree that you need to reflect anything on last years purchases.
