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Accounts

puja gupta (Company Secretary) (74 Points)

30 August 2011

Mr. A purchase 1000 units @ Rs. 100 per unit. Vat charge @ 4 %. After charging VAT he get discount of 10% on gross amount.. He will get the credit of VAT.

Please suggest me what should be inventory value, whether Rs. 1 lac (in which discount should be credited directly to the P/L A/c). or Rs. 89600/-

Thanks

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18 Replies

(Guest)

hi puja in my opinion the inventory should be valued at Rs.89600. Vat receivable a/c should be debited with Rs.400.

Vijay (Adamo Studio) (2112 Points)
Replied 30 August 2011

I think value of inventory would be 90000 here.

Vijay (Adamo Studio) (2112 Points)
Replied 30 August 2011

Lets see

100+4%-10%= 93.6(Price after discount but including VAT-104)

So value of inventory=93.6*100/104=90/unit

so 90000

valji (Accounts manager-MBA) (2150 Points)
Replied 30 August 2011

i also think of 10000-10000=90000

Nitika (article) (67 Points)
Replied 30 August 2011

I hope cost of inventory should be this

Purchase a/c ---Dr 1000*100=100000

Vat Receivable A/c Dr 100000*4%=4000

To Cash Discount A/c 104000*10% =10400

To Party A/c 104000-10400=93600

so the inventory cost will be Rs 100000/- and cash discount will directly credit to P/L account

1 Like

CA Tarun Jagdish (8893495263) (153 Points)
Replied 30 August 2011

a) Bill Amount - 100000

b) Add VAT - 4000

C) LESS Disclount 10400

D) NET AMOUNT 93600

If Vat is refundable then it should be shown seperately. So the entry would be

Purchase a/c Dr 100000

Vat Refundable A/c 4000

To Discount Received 10400

To Bank 93600

And there fore the closing Stock will be valued at 100000.

2 Like

(Guest)

Agreed with CA Tarun Jagdish Sir

(Guest)

Nice descripttion by CA Tarun

amit mehra (student) (23 Points)
Replied 30 August 2011

in my opinion.....mr. A can also give debit note to the vseller n debit his/her account...n pass d following entry.....

Purchase a/c dr. 100000

Vat a/c dr. 4000

To Bank a/c 104000

amit mehra (student) (23 Points)
Replied 30 August 2011

n later on pass d following entry...

Party a/c dr. 10400

To Discount a/c 10400

Plz correcty if i am wrong....

thanks n regards

CA Tarun Jagdish (8893495263) (153 Points)
Replied 30 August 2011

Thank You Santhosh

(Guest)

You are welcome sir

Vijay Korke (Associate Finance Professor) (21 Points)
Replied 31 August 2011

The discount received is a trade discount and not a cash discount. Trade discounts are deducted from the purchase price and not accounted for seperately. Since in the instant case the discount is given for both the basic price and VAT (which is recoverable), the entry would be as follows:

Purchases a/c Dr 90,000

(Rs 100000 less 10%)

Vat Recoverable a/c Dr 3,600

(Rs 4000 less 10%)

To Bank or Party's a/c 93,600

(depends if it cash or credit purchases)

(Also cash cannot be paid unless you want to attract the penal provisions of the Income Tax Act)

Therefore Inventory will be valued @ basic Purchases price i.e., Rs 90,000