GOODS FOR OWN USE -FRA UNIT 5

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
Hi everyone<BR><BR>I get little confused by the explaination of the goods for own use .According to the Osborne books P90, when the owner takes goods in which the business trades for his or her own use, the double -entry is:<BR><BR>Dr Drawing a/c Cr Purchase a/c (Cr Vat a/c)<BR><BR>why is Purchase a/c not Stock a/c?<BR><BR>but in otherway i undertand the alternative methord<BR><BR>Dr Drawing a/c Cr Sales a/c ,howerer which way is best and why?<BR><BR>thanks in advance for everybody's help

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    GOODS FOR OWN USE -FRA UNIT 5

    I am doing FRA as well at the moment and this is what I make of it. (bearing in mind I am only studying this unit as well)<BR><BR>The stock account on the ETB is the opening stock balance from last year and the closing stock balance from this year end. Then there is purchases and the 3 make up the cost of sales. <BR><BR>Although taking it from the closing stock or purchases gives the same answer in the end, but the way i think of it is. <BR><BR>Goods for own use will have been taken within the year and therefore would have been BEFORE the year end end closing stock valuation took place.<BR>Another way to look at it is Stock is valued at the lower of cost or net resalable value, therefore it is more fair to take out of purchases at the cost price. <BR><BR>Which method is best? Well I would have thought that purchases instead of sales would be best. Think of it this way - If you was a director taking goods, would you want to pay the purchase price or the sale price? Well I would take the purchase price as its lower than the sale price.<BR><BR>I hope this makes sense, if not let me know.<BR><BR>Amanda
  • System
    System Posts: 100,534 🤖 Admin 🤖
    GOODS FOR OWN USE -FRA UNIT 5

    Hi Amanda ,<BR>i think your answer makes a lot sense to me , you are right , only the annual stock valuation is recorded on stock account , and the account is not used at any other time ,so i accept goods for own use will not enter in stock a/c;<BR><BR>but if the director is going to take the goods ,which will be sold cheaper price than purchaes price , i believe that we should take sale price then purchaes price .<BR><BR>Thank you very much for your help
  • System
    System Posts: 100,534 🤖 Admin 🤖
    GOODS FOR OWN USE -FRA UNIT 5

    I would check that. I believe people like HMCE and IR expect a director to pay a "fair selling price" for goods taken for personal use.

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