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Accounting for exchange offer

Atharv Sankliya (1306 Points)

05 April 2023

what are the journal entries and accounting treatment for exchange offer in a mobile/electronic shop

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6 Replies

Yasaswi Gomes new (Finance ) (4479 Points)
Replied 05 April 2023

Is that mobile a company asset?

Atharv Sankliya (1306 Points)
Replied 06 April 2023

Inventory

Yasaswi Gomes new (Finance ) (4479 Points)
Replied 06 April 2023

Company sells mobile for 100 and profit margin is 50. The customer returns it back for exchange and buys a mobile worth 200 where the profit margin is 100. Customer mobile after usage is valued at 30. So the profit is now 30. If the company has only two mobiles made and sold, the entries will be

Dr. Inventory 400

Cr. Income statement 400

After exchange

Dr. Inventory 230

Cr. Income statement 230.

Then to assess the profitablity

Dr. Exchange loss 170

Cr. Receivablez 170

For cash sales

Dr. Exchange loss/ salez 170

Cr. Bank. 170 bank because you spent money from bank on productuion.

Sale can be recorded as

Dr. Inventory 30

Cr. Sales 30

Because sales is recorded at net of taxes and discounts.

I hope i got it right.

Yasaswi Gomes new (Finance ) (4479 Points)
Replied 06 April 2023

Ive modified it please check and comment

Yasaswi Gomes new (Finance ) (4479 Points)
Replied 06 April 2023

Company sells mobile for 100 and profit margin is 50. The customer returns it back for exchange and buys a mobile worth 200 where the profit margin is 100. Customer mobile after usage is valued at 30. So the profit is now 0. If the company has only two mobiles made and sold, the entries will be

Dr. Inventory 200

Cr. Income statement 200 inventory valued at cost.

After exchange

Dr. Inventory 130

Cr. Income statement 130 inventory valued at cost

Then to assess the profitablity

Dr. Exchange loss 70

Cr. Receivablez 70

For cash sales

Dr. Exchange loss/ salez 70

Cr. Bank. 70 bank because you spent money from bank on production. This bank entry is a depiction.

Sale can be recorded as

Dr. Inventory 30

Cr. Sales 30

Because sales is recorded at net of taxes and discounts.

I hope i got it right. But what happened to the profit margin? Thats because we sell inventory at cost for profit and sales will be impacted but no impact on tax losses. Now im ready for opprobrium.