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Accounting treatment of free goods issued along with sale of (Accounts)

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( Author )
23 July 2008

In a retail business, it is a common practice to issue goods at free of cost along with other items of sale. I want to know what should be true accounting treatment one should adopt in an ERP set up retail chain?

Some retail houses are showing as sales at cost prices and the corresponding value are also shown as sales promotion. Since purchase is already booked so effectively the loss is also booked. A retail house is transfering the items at zero value and simply showing as sales promotion by crediting purchase.I find the second treatment is more rational, however, there may be again the question of accounting treatment of VAT in this situation. Please provide your suggestion ASAP.


S.Srinivasaraghavan

( Expert )
24 July 2008

Free samples. (Sales promotion)


C.A Alok Mukherjee

( Author )
24 July 2008

Dear Mr. Srinivasraghavan, thanks. yes, this should be sales promotion. I just want a confirmation, in that case the will the stock be out at zero values? And on free goods there will not be any notional vat?


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