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jitesh (Querist)

01 July 2010 Dear seniors, friends

Please suggest me the accounting treatment of interest paid to supplier on delays payment of money.

Should it be debited to Raw material Purchase (or) it should be shown seperately as a financial charges

Actually one my Client has Imported goods from Japan. And it has paid interest for delay payment. Further it has debited the interest amount in Purchase itself.

My query is that i think Interest charges should not be debited to Purchase.

Me looking forward for Expert Advice

Regards
Jitesh Tibrewal
Singhi & Company
Final Year Article

Ashok Malhotra

Ashok Malhotra (Expert)

04 July 2010 To my mind both treatments are right provided we are considering only accounting aspects only.

We have to keep in mind two things:

1. Matriality concept - If interest payment is not the regular feature and the amount of interest is not so significant, you can add to the cost of inventory purchase.

2. Accounting policy of the company keeping in mind valuation of inventory.

CA Ashok K Malhotra

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