Freight / Stock Cost

crispy

Hello,

I wonder if anyone can provide me with any advice with regards to the following transaction in respect of inbound freight.

Company where I work (small Ltd co.) has imported a large number of materials from Saudi Arabia and as a result incurred duty/freight costs of £ 9,000-. As of the financial year end none of these goods have been sold and remain in stock, currently in the accounts I am carrying forward the freight costs of £ 9,000, however at a meeting with our external accountants they have mentioned writing off this amount as a period cost. I do not understand if this is correct, or if the freight/duty costs should be released when the goods are actually sold.

Thank you for any feedback.

SandyHood

crispy
I hope you get quite a few responses.
My background prior to teaching is in the financial control/managementaccounting end of accounts.
I would write off the frieght cost.

sammyd22

crispy wrote: »

Hello,

I wonder if anyone can provide me with any advice with regards to the following transaction in respect of inbound freight.

Company where I work (small Ltd co.) has imported a large number of materials from Saudi Arabia and as a result incurred duty/freight costs of £ 9,000-. As of the financial year end none of these goods have been sold and remain in stock, currently in the accounts I am carrying forward the freight costs of £ 9,000, however at a meeting with our external accountants they have mentioned writing off this amount as a period cost. I do not understand if this is correct, or if the freight/duty costs should be released when the goods are actually sold.

Thank you for any feedback.

I cannot understand why the Freight/Carriage is not part of the value of stock?

At my company the Carriage etc is all part if the Stock Item/Items.

Therefore,

If stock costs 50,000 + 10,000 carriage = Stock will have a value of £60,000

If you still have all of your stock Un - Issued at year end, surely you cant charge the Carriage to that period when goods will be issued in the following period?

If you still have all of the stock at year end i would incorporate the freight into the value of stock and not write it off! I would include the Freight charge as part of the current Asset!

But thats just my opinion.

I think different companies have different methods.

blobbyh

I'd also release the costs in the period you actually incurred them.

crispy

Hello,

Thanks for replies, my reason for carrying forward the freight inbound amount was as per sammy's reply - ie: cost of stock should include any freight/duties (as per accounting standard - don't remember the standard number), would be interested in any further opinions.

Thank you again.

sammyd22

crispy wrote: »

Hello,

Thanks for replies, my reason for carrying forward the freight inbound amount was as per sammy's reply - ie: cost of stock should include any freight/duties (as per accounting standard - don't remember the standard number), would be interested in any further opinions.

Thank you again.

If the Freight is included in the stock price, then a part of the freight will hit the P&L in accordance with the Issue.

If the sale will occur in the following period than so should the Cost.

sdv

crispy wrote: »

...... I am carrying forward the freight costs of £ 9,000, however at a meeting with our external accountants they have mentioned writing off this amount as a period cost.

My first inclination is to follow the advise of your external accountants. You can by all means ask them tactfully, to justify their reasoning. They may have information that may not be apparent.

However, this is a student's forum and this is an interesting senario.

crispy wrote: »

Company where I work (small Ltd co.) has imported a large number of materials from Saudi Arabia and as a result incurred duty/freight costs of £ 9,000-.

The question to ask could be:-

Are duties and freight costs part of "cost of goods"?

from the following websites I got

http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790604

"....... unlike VAT, duty can't be reclaimed, even if your business is VAT-registered."

Therefore a logical conclusion is that that Duties are part of Cost of Sales


http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790604

Under How Duty an VAT are calculated?

"Import duty is calculated as a percentage of the customs value of the goods.

The customs value is made up of:
+ the price paid for the goods (sales tax included);
+ the insurance cost;
+ the shipping cost.

VAT is calculated as a percentage of the customs value plus
+ the duty paid."

It is clear from the above the total costs of goods include the cost of Freight and Duty.

VAT is then calculated on the TOTAL COST of the purchase of goods for sale.


conclusion:

I would include the cost of Duty and Freight as part of "cost of Purchase" and carry the total cost as Value of Closing Stock. (SSAP9 /IAS2)

crispy

Thanks for link sdv - the accounting standard looks clear to me.

I think this is a case of 'profit manipulation', I was losing my confidence in the meeting as a director had stated confidently that 'The freight/duty costs should definately be written off and not included in the stock valuation'. I can understand this from a management accounts decison making position, but for the published financials cannot see the treatment as being correct (due to accruals concept as per sammy/sdv's replies).

sammyd22

sdv wrote: »

My first inclination is to follow the advise of your external accountants. You can by all means ask them tactfully, to justify their reasoning. They may have information that may not be apparent.

However, this is a student's forum and this is an interesting senario.




The question to ask could be:-

Are duties and freight costs part of "cost of goods"?

from the following websites I got

http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790604

"....... unlike VAT, duty can't be reclaimed, even if your business is VAT-registered."

Therefore a logical conclusion is that that Duties are part of Cost of Sales


http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790604

Under How Duty an VAT are calculated?

"Import duty is calculated as a percentage of the customs value of the goods.

The customs value is made up of:
+ the price paid for the goods (sales tax included);
+ the insurance cost;
+ the shipping cost.

VAT is calculated as a percentage of the customs value plus
+ the duty paid."

It is clear from the above the total costs of goods include the cost of Freight and Duty.

VAT is then calculated on the TOTAL COST of the purchase of goods for sale.


conclusion:

I would include the cost of Duty and Freight as part of "cost of Purchase" and carry the total cost as Value of Closing Stock. (SSAP9 /IAS2)

I agree