MyCIMA

Accounting Entry treatment for sample product

Replies : 4

Can anyone tell me and share with me what is the correct accounting entry in practise for the below scenario:-

 

Company A is a trading company, some of the products purchase are for sales and sample (ie for demostration to the end customer).

What is the correct accounting entry for the sample, write it off as an expense or capitalise as assets and amortise it for couple of years. 

 

Accounting entry for sample Product

Hi Lee,

 I have seen the practice of sample product cost as an expense under the category of "Advertising Expense". 

 

Best Regards,

Vicky Kumar

Chief Accountant

ECC Abu Dhabi, UAE

Accounting entry for sample product

I have same thinking with you but the previous accountant in this company

capitalise this sample cost as "demosatration set" and amortised it for 5 years, nevertheless the costs is not so significant ie USD 300.

Have you ever seen the practice of capitalise the sample use for demostration to the customer as an asset.

Materiality

If the expenditure was a large value item I would capitalise and depreciate over it's useful life. In this case though I would write it off as it's so immaterial and the admin of depreciating would not be worth the effort. The auditors will pass it as isn't of significant value to warrant adjustment.

Trial Run Operations

My post is just an extension of query originally posted to take it a bit further. For manufacturing concerns, loss on trial run operation is capitalized in cases where new plant has been installed. It is in accordnace with IAS 16 which provides that any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

In case of trading concerns, if the cost of sample products is materail in relation to overall tunrover and the assoicated benefits are expected to be availed over a longer period of time, then it needs to be capitalized. But if it is probable that the resulting benefits i.e. sales would be achieved during the curren period, then this should be booked as expense for the current period. Matching principle applies.