From the point of view of distributor:

Distributor gets  goods  free as sales commission along with normal purchase.

ie suppose a 12 pakets of vanaspathi purchased ,5 packets free to agent......how to account for better control

These free items are shown in purchase invoice at nil value.

17 packets at average cost.

salman is right. let me explain wid an example:

if u purchased 12 pac. + 5 free Pac. for Rs. 204 (ie 12Pac x Rs. 17/-per Pac + 5 Pac x Rs. 0/- per Pac)

now the Avg cost per Pac is Rs. 12/- and not Rs. 17/-

Avg Cost Per Pac = Total Expenditure / No. of Pac received

how comes: Rs. 204 / 17 Pac. = Rs. 12/- per Pc.

 So it should be taken at average cost.........ok got it....

 thank you very much to Naveen and Salman