Treatment of mark up on PAD

[KANWAR]

AA all,
Mark up paid to bank for late payment against lc (import at sight).
Please tell me is it financial expenditure or import jo directly cost of sales ma jatee ha.

and agar ye Mark up Dishonor Bills ( Acceptances) par ho to kea treatment ho ge. For a limited company paid up capital 100 Million

Regards

KANWAR

[awaisaftab]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by KANWAR</i>
<br />AA all,
Mark up paid to bank for late payment against lc (import at sight).
Please tell me is it financial expenditure or import jo directly cost of sales ma jatee ha.

and agar ye Mark up Dishonor Bills ( Acceptances) par ho to kea treatment ho ge. For a limited company paid up capital 100 Million

Regards

KANWAR



<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Dear Kanwar,

In all above cases you will debit Bank charges or Financial Charges account it will be treatment in all businesses and capital and type of business organization is irrelevant
here.

Regards,
Awais

[KANWAR]

Dear Awais
why not to COST becoz it is directly related to purchase. ise tarah insurance on import ko kahan show karna hay. Cost of sales or Admin expenses. please tell me in detail.
REGARDS
KANWAR

[kamranACA]

Kanwar,

I refer you to paragraph 11, 16, 17 and 18 of IAS-2 'INVENTORIES' and paragraphs 4, 7 and BC6 of IAS-23 'BORROWING COST' to get the guidance.

COST OF INVENTORIES

Paragraph 11 OF IAS-2 provides guidelines about what costs have to make part of the cost of the inventories. These comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are excluded/deducted in determining the costs of purchase. Paragraph 16 of IAS-2 enlists examples of various costs which cannot make part of cost of inventoroes. These include abnormal amounts of wasted materials, labour or other production costs, storage costs (unless those costs are necessary in the production process before a further production stage), administrative overheads (that do not contribute to bringing inventories to their present location and condition) and selling costs.

BORROWING COST AND FINANCE CHARGES ETC

Paragraph 17 of IAS-2 clearly states that "IAS 23 Borrowing Costs identifies limited circumstances where borrowing costs are included in the cost of inventories." So, for including finance cost in inventories there are very limited situations. Paragraph 4 of IAS-23 clarifies that borrowing cost cannot be capitalized in the cost of inventories that are produced in large quantities on repetitve basis. (Paragraph BC6 is relevant to understand it.) Moreover, paragraph 7 of IAS-23 also stipulates that the inventories that are manufactured, or otherwise produced, over a short period of time, are not qualifying assets for capitalizing the borrowing costs.

This leaves very rare and unique circumstances where borrowing costs could be capitalized in any sort of inventories.

Apart from the above, even where some inventories are purchased on deferred settlement terms, where 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 recognized as interest expense over the period of the financing. This clarified by paragraph 18 of IAS-2.

If you need to know what does mean by borrowing cost, you may study paragraph 6 of IAS-23.

To sum up the above, in my view, the costs at import stage which you have pointed out in your first post cannot be included in the cost of inventories.

Regards,



KAMRAN.

[KANWAR]

KAMRAN SB,
Thank you Kamran sb, I m simple B.com and do not know about IAS. I am an accountant in a factory. Can u send me link or reproduced here the portion of said IAS. What about Insurance? kea ise inventory cost man include karna hay.
REGARDS
KANWAR

[kamranACA]

Dear,

In my view, insurance in transit that has been incurred to bring the inventory upto salable condition may be added in the value.

You can get the IAS/IFRS book from any nearby accountancy student of ICMAP or ICAP. The paragraphs and relevant IASs, I have already informed.

Regards,


KAMRAN.

[KANWAR]

Dear Sir,
Thank you again, One thing more, FADB, balance sheet man short term bank borrowing ho ge ya other payables and mark up payable on FADB ko balance sheet man kahan show karna ha.
Regards

KANWAR

[kamranACA]

Dear,

All finances if payable within 12 months from balance sheet have to be shown in current liabilities as short term financing or current portion of long term financing depending upon the nature of the loan.

Revised 4th and 5th schedule to the Companies Ordinance, 1984 have suggested to show the Accrued Interest/Mark-up on the face of the balance sheet. It may appear within current liabilities after Trade and Other Paybles.

Regards,


KAMRAN.

[KANWAR]

Dear Kamran sb,

You mean FADB (Finance Against Dishonour Bills) would be added in short term financing instead of Foreign Creditors. May I understand right.

Regards
KANWAR

[smraza]

Very well explained by kamran,hats off for you.

[wasim akram]

NO DOUBT