How to measure withdrawals of goods and finished goods by owners in IFRS financial statements?
a) Is the withdrawal at carrying amount or fair value?
b) What is the appropriate booking entry?
per sales of goods to finished products
and sales tax?
)c Are withdrawals by owners actions of owner in their function as owners? (If yes, the journal entry might not have any effect on net income)
Dear Waad hadi Alhasany,
can't read your answer in arabian letters, sorry.
Best regards
Peter
You may want to check the following paper out:
On Recognition And Measurement Of The Revenues According To IFRS 15
M Vardiashvili, M Maisuradze - Economy & Business Journal, 2017 - researchgate.net
Thank you very much.
But the paper does not address any of the questions raised.
Best regards
Peter
I assume , withdrawal you mean out of the stock due to the delivery to the customer i.e. the cost of COGS. There are more methods for determining the cost of goods sold: periodic/perpetual FIFO, weighted Average; unit-specification method, or gross profit percentage method, to mention the basic ones.
Remaining inventory: (its cost in accounting books (a consequence of the method used for COGS calculation) is determine at the balance sheet date applying LOCOM (lower or cost of market). - IAS 2. The sale revenues are recorded in selling prices (IFRS 15), which is now not an issue but it is tied with this transaction of delivering goods to a customer. It also depends on the inventory, (agricultural product ??? it may be different treatment). If own production , see whatever book on Cost management or Managerial Accounting.
it is a drawings and therefore, drawings must be debited
Arockiam Prakash
The term Withdrawals is used when cash is withdrawn for personal use (yes and at that time it is Dr. but it is not connected with Inventory.
The only case it could be connected if the owner took inventory for his personal use., in this case it is withdrawal (Dr. ) and not Cash Cr. but Inventory Cr.).
With inventory it is recommended to use: disposal (if damaged inventory and not suitable for any use, or taking inventory out of the warehouse due to the delivery to the customer when sold) , and inventory is credited at that time and COGS is debited. (Given, revenue was recognised). (Or other expense if this is not a sale of the inventory.. It is not clear from what was asked what the reason is of using the inventory.due to the sale? due to the production? then it would be MATERIAL..) etc..
The question refers to "an owner taking an item of inventory (e.g. finished goods; carrying amount 75 CU; fair value/ordinary sales price 100 GU) for his personal use" and adresses the question whether the transaction (this sale) of is booked - neglecting VAT
(a) at the fair value of the item or its carrying amount:
(a1) e.g. receivables 100 CU (which means that a profit of 25 CU incurs)
or (a2) e.g. receivables 75 CU (which means that the profit is 0)
(b) if (a1) applies: Does this profit incur
(b1) from a non-owner transaction (therefore recognized in P&L)
(b2) from an owner transaction (therefore recognized in OCI)?
You cannot neglect VAT, you must account for Withdrawals 100 CU debited and Inventory Credited by 75 CU (75 is meant FIFO or weighted average value) and VAT credited by 25 CU as it was a sale, it is in the case that the purchase of material for production was accounted for Material Debited by 'X" CU and VAT debited by VAT% * "X". (Cash or Payables credited by the total CU). No sale recognized, no receivable here are accounted for. Only withdrawal for personal use in the form of inventory (finished goods)...
I know, that in real cases VAT has to be considered. But, I wanted to keep the example as simple as possible. Therefore, I left it out.
VAT is credited by 25 CU - liability, you must pay it to tax authority if your purchase of material for the production included VAT (on debit side).
No revenue recognized, only Withdrawal account is decreased by 100 CU (Dr.) , Inventory is decreased by 75 CU (Cr.) and VAT is increased by 25 CU
(Cr.)
It is a transaction : distribution of profit (as if dividend from the net profit in the form of non-monetary asset -inventory, not effecting net profit, only Retained Earnings)
One could argue, that the owner pays the same price as an external customer. Thus, it is not a typical owner transaction. This is also supported by the fact, that the profit arising from this transaction will be part of distribution of profits between all existing owners.
No, 75CU was the cost of goods (it does not mater if calculated by FIFO or weighted average or by gross profit ...etc. methods) Selling price would be higher increased by gross profit margin and VAT would be higher accordingly, too. You cannot take it as a revenue generating transaction, the owner took a dividend in the form of a nonmonetary asset - e.g. finished goods . Actually, he lost revenue by not selling it outside. (similarly a gift to somebody but in this case you would have an expense you would also have to pay VAT to the tax authority , because you are donating also VAT linked to the gift.)
Yes, it goes without saying the cost (FIFO etc) at the end is compared to the market to determine net realizable value, but it is not fair value.
But a good reminder Isolda, thanks, if dividends are paid in not cash form, we must check fair value of inventory . So withdrawal will be debited for the fair value plus VAT from FV of inventory CU (iin the case that material purchased recorded VAT on debit side ) and Finished goods credited (inventory) by cost value, VAT CU credit and yes we have revenue if Fair value > than cost or loss if FV< cost of Inventory (or NRV of Inventory may be the case). see IFRIC 17.
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