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Treatment of transportation costs

08 July 2020

If we are transporting finished goods from our godown to retail store where we sell those finished goods . then what should be the treatment of that transportation costs will it be treated as cost in the cost of good or as direct expense in pl ac...and the reason of treating so...

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2 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 09 July 2020

If inventories are transported to the factory for manufacturing and bringing them into their useful lives, those transportation costs are treated within the cost of inventory. If inventory is valued at cost, then distribution costs of finished goods will be directly expensed to income statement

Distribution expenses a/c

To Payables a/c

Since, your taking the finished goods to other location to sell it, it can be NRV or FVLCS, so the distribution costs are subtracted from finished goods ready for sale and expense it in the Income statement. It should probably look like NRV=

Conversion costs a/c

Distribution expenses a/c

To Inventory a/c

this is an experimentation entry. :)

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 09 July 2020

Ok, I just now tested NRV accounting treatment and it satisfies the Balance sheet equation. This is an acceptable method for all NRV companies. The price variance analysis will give a descripttion of any adverse or favourable price variances. Then, NRV measurement can be journalised into the final accounts based on accruals and the fair value changes in the subsequent year can be adjusted accordingly. I don’t think there will be much issue about cost constraints because the data is internally available. Nice job, if no company is following his method, then I should buy myself a patent for this treatment.