Hi - my client has purchased a van for resale, so it is a stock item. The price of the vehicle on the supplier invoice is shown as £7600. However, the invoice shows an additional 10% on top of the purchase price for "Indemnity", so the total cost is £8360. I am unsure as to the entry with regard to the indemnity cost - is this part of the cost of the vehicle? My client is a used van dealer, but I haven't seen any indemnity costs on any invoices previously. All advice greatly appreciated.
Per IAS2 you would measure at the lower of cost and NRV.
Cost will include (almost) all costs incurred in bringing the asset to the location and condition for sale. I say almost as there is an override in IAS23 to that precept in relation to interest of borrowing being accounted for seperately in some instances.
In short, if the Indemnity insurance was an integral part of the purchase and no purchase could have been completed without it then it forms part of the cost of the item. If it was an optional extra more akin to an admin overhead weith no direct relationship to the purchase then it does not form part of the cost.
The key. Could the van have been purchased without the indemnity? If not then include it in the cost.
HTH,
Shaun.
p.s. if you are using FRS105 then it's section 10.4. If you are using FRS102 then it's section 13.5
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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.
