Dear experts,
One of our client sales tea @ Rs. 120 per kg and he also gives a thing Y with per kg of tea, which costs him Rs. 10 per piece. Now I want to know that whether the cost of Y should be treated as direct cost or indirect cost?
I mean whether this cost of Rs. 10 will be shown in trading account or P&L account.
Whatever cost is incurred upto the stage of conversion of raw materials into finished products the same is to be treated as direct expense and to be shown in the trading account.
In case of trader there are hardly few expenses whihc can be charged to trading account such as freight, purchases etc.. So the thing sold alongwith the tea shud be treated as an indirect expense and shud be charged to the P&L account and not Trading account.
Rs. 10 is to be tretead as sales promotional expense and transferred to P/l a/c.
Should be post to P&L
CAclubindia
