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Hi Allan,
I think your question has been answered. Trade discounts are a reduction of the purchase cost of inventory, cash discounts are financial income. What more can we add? We have seen a specific reference to trade discounts in IAS 2 (but no specific reference to cash discounts so have to assume that these are not treated the same because of their omission). I have been unable to find any authoritative document specifying the accounting treatment of cash discounts. There are some definitions at www.principlesofaccounting.com that might be useful (call up the website and search on discount). A Google search throws up many references but none that I would call an absolute authority. A search of US GAAP for instance threw up nothing useful.
I think it is one of those things that we accountants just "know". Anyway, I hope the discussion has helped you.
Regards, Roy
Roy Brookes AFA, FInstBA,
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| | | ---------------Original Message---------------
From: a_godfrey
Sent: Monday, December 06, 2010 2:10 PM
Subject: Cash Discounts for Distribution Companies
We are actually using VISTEX as an add on for all trade discounts, and they are
being included in the inventory valuation. This question was specifically in
relation to the cash discount, which as I indicated, the auditors have insisted
should be a part of the inventory valuation because of?my clients practice of
taking the discount whether or not the payment is made within the terms.
I agree that I have only seen cash discount being processed through to the P&L
at time of payment, and not passed through as part of the inventory valuation,
but my client insists this is common for distribution type operations. I do not
have the background in this industry to argue on this point.
Allan Godfrey
>A.P. Godfrey Consulting Inc.
>http://www.linkedin.com/in/allangodfrey
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