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Treatment on Free Gift on Purchase

Vikash Patodia (CA, CS, B.Com) (32 Points)

25 May 2011

Dear Friends, I have a question for u. Pls Help............

A company purchases a machinery and gets 1Kg Gold free alongwith. What should be the treatment of the Free Gift in books of accounts?..................

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9 Replies

Jag Bhushan Sharma (Faculty in a B-School) (633 Points)
Replied 25 May 2011

The total price paid for machinery can be bifurcated. Gold should be valued at its current price and balance should be shown as the price of machinery.

1 Like

Desperado (Cost And Management Accountant) (129 Points)
Replied 25 May 2011

Dear,

Although not strictly applicable in your situation, still IAS 20 can provide a basic guidelines to resolve the issue. IAS 20 pertains to accounting for the government grants.

You can capitalize / account for the asset at its fair value in your books of account by crediting DEFERRED CREDIT account. Every year, exactly an equal figure would be amortized from DEFFERED CREDIT and accounted for as income in your profit and loss account. Balances of the deferred credit account will be reduced every year with equal figures of amortization booked as income in P&L.

An alternative solution may be applicable in those cases where fixed assets registers do not intake the entries without an amount. In this case you can account for the asset at a nominal value of Re. 1 only by crediting your Other Income account. This will help keeping a monitory control over the asset as it will appear in accounting record as well.

However, I recommend the first solution that is based upon the guidelines of IAS 20.

Best Regards,

Desperado.

1 Like

CA AMIT AGRAWAL (Chartered Accountant) (173 Points)
Replied 25 May 2011

Agree with jag bhushan sharma ji.

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graphologist Face reader Vastu Expert) (85930 Points)
Replied 25 May 2011

I tthnk wat Mr Jag Sharma says is correct.

Anshu Garg (working) (139 Points)
Replied 25 May 2011

Agree with Mr. Jag Sharma ji

Rup Kumar (finance manager) (288 Points)
Replied 26 May 2011

Mr. Jag Bhushan Sharma may be right.

piyush Kumar Gupta (Accounting / Taxation Consutancy) (28 Points)
Replied 29 May 2011

Mr. sharma is right

satish kumar Chauhan (accountant) (344 Points)
Replied 02 June 2011

I agree with Mr Jag Bhushan sharma

suvo.says@gmail.com (sap) (34 Points)
Replied 26 June 2011

Free gifts should be accounted via any Capital A/c, may or may not be clubbed with the machinery according to nature of concern, to be valued @ present value.