Do you have a carriage nominal code? I'd post the goods to COS £200, and the £20 to carriage which - depending on how your chart of accounts is set up - should be classed as a direct expense.
The postage nominal code you refer to I normally take as general postage outwards, which is classed as an overhead.
My question is regarding International Accounting Standard N2
" Cost of inventories
10
The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Costs of purchase
11
The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), andtransport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase."
The cost of the asset as you have identified are all those costs incurred in bringing the asset to the location and condition intended by management.
Note that this may also include eventual disposal costs where legal obligation exists at the point of purchase or construction (such as site restoration costs).
You state that you're going on IAS2 Inventories but for your second question you need to be refering to IAS16 Property, Plant and equipment. (also worth reading in connection with this is IAS37 Provisions, contingent liabilities and contingent assets and IAS36 Impairments).
Also, don't forget to refer to IAS23 Borrowing costs as for all those costs directly incurred during construction or purchase the finance charge must be capitalised as part of the cost.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
This depends on if you are using Sage or a software or manual accounts
Purchase orders are always seperate to carriage, therefore manual accounts will be used as a double entry. Remember always start off with the bank account.
Ledger Accounting Manual
Cr Bank Dr - Purchase
Cr Bank Dr - Carriage
Cr Bank Dr - VAT
Purchase account Carriage account VAT account
Dr Bank Dr Bank Dr Bank
Bank account Bank account Bank account
Cr Purchases Cr Carriage Cr VAT
Sage would be Dr 5000 - Purchase
Dr 7501 - Goods
Sage would automatically do the double entry (Control accounts) and VAT
This depends on if you are using Sage or a software or manual accounts
Hi Luther,
Just to clarify for Diona you are answering her first, not second question (The second being in relation to equipment rather than stock).
One worrying line though was your first statement which I'm sure that you wrote without thinking through the implications of such a statement.
The reality is that if there are situations where Sage does not handle assets identically to a manual system then Sage is either incorrect or being used incorrectly.
All that Sage is is a piece of software to ensure that data is input in a consistent self checking manner.
It is not down to the software to dictate financial reporting standards as that would be setting Sage on a par with the IASB / FRC / ASB, etc. Where at the end of the day Sage is simply a software vendor, not a dictator of accounting standards.
In relation to equipment. Please read these excerts from an appraisal of IAS16 by Delloitte Touche on initial recognition of equipment (I've checked them against the somewhat larger original standard for consistency. The Delloitte version is the same but just a little more readable) :
An item of property, plant and equipment should initially be recorded at cost. [IAS 16.15] Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site (see IAS 37, Provisions, Contingent Liabilities and Contingent Assets). [IAS 16.16-17]
If payment for an item of property, plant, and equipment is deferred, interest at a market rate must be recognised or imputed. [IAS 16.23]
If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the cost will be measured at the fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. [IAS 16.24]
Hope that this also clarifies matters in relation to capitalisation of costs incurred in commissioning an asset for a business for other readers.
kind regards,
Shaun.
P.S. Please do not take any of the above as a personal attack Luther as it's certainly not intended as one.
You gave an excellent answer to the first question but I just needed to pick up on that one statement and also ensure that other readers realised that there was seperation between Diona's first and second questions which are quite different scenario's.
The core of my reply though is that Sage is just a tool that is subservient to accounting standards. It doesn't set them.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
But I think that the nominal code 7501 in Sage is not the right one for carriage.
My opinion is that you can use 5000 for carriage as well (regarding IAS2 it's not wrong) or if you want a separate nominal code 5100 (you can notice that 5100 is part of the purchases in Sage). The main thing is the right figure of GROSS PROFIT. If you buy goods for £200+carriage £20 and then sell them for £300. The gross profit is 300-220=80. It's not 300-200=100.
"I don't explain in jargon or great depths as I find people get to bored or don't understand".
Generally I find that when we explain to clients we know of course the reasoning behind why we do things the way we do but we simplify matters for them.
On here we are talking to like minded financial professionals who will not get bored with the subject matter and the more depth given to arguements the better peoples understanding of the subject matter becomes.
Wait till you tune into a debate between someone like Bill (Wella) and myself over tax issues!
People in this business have to get into the state of mind that they need to read some (not all) accounting standards in raw form espechially for those bookkeepers who venture into accountants territory of preparing financial statements, tax returns and management accounts.
My view is that the only people who do not need to understand the technical jargon are data inputters and I don't think that anyone who takes the time to read and contribute on this site could be classified in that category even if that is what their current role entails.
People are here to learn more and we'll keep on giving them meaty answers to get their teeth into without being too complex. (Note that in my previous response I gave the Delloitte answer, not direct excerts from the accounting standard itself).
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Yes sorry 5100 and I think if you are charging carriage then it's 4905 I believe.
It's always good to know these things
Kind regards
Luther.
I always put carriage on sales in the 7000 range as an overhead and just include it as part of whatever I sold as a receipt.
If I sell x at £100 inc carriage then it goes in nominal 4000 (which is x sales) as £100, it could be that I'm not doing it the correct way and can see the logic of seperating the sale of carriage out. £80 in 4000 and £20 in 4001.
Would be interested in peoples views on this.
-- Edited by Rhianrach on Sunday 8th of January 2012 02:35:48 PM
I don't think it matters whether it's cash or credit or whether you use the bank first, I wasn't to sure if Diona was using Manual or Computerized. I wrote that in just to help when accounting for manual....but thankyou...if this is what you mean,
