An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financing element, that element, for example a difference between the purchase price for normal credit terms and the amount paid, is recognised as interest expense over the period of the financing.
Same concept is used in IAS 16 PPE and IAS 2 inventory.
can anyone give clerification and practical example on word "normal credit term" ??
it is bassically about the credit period
normal credit terms means those terms & Condition , Credit period which is generally adopted in A certain type of industry like 30 days credit in supply of raw material of I.T. Equipments eg. payment due 5000 Rs
deffered settelment terms are those terms & Credit period which is agred b/w two parties like 45 days & payment Dues Rs. 5500
in the above situation Diff. B/w Amt Due may be treated as financing charges for extended credit period
thats solved for more info
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In the given reply, considerations should be given to the tyoe of customers, nature of goods, and other terms of the contract.
Gupta Sachdeva & Co. Chartered Accountants
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