Purchase price

Learning objectives

• Calculate a net purchase price including import duties and non-refundable purchase taxes and deducting trade discounts and rebates.L1, L2
• Record the acquisition of an item of property, plant and equipment at its purchase price.L1

Normative references

• IAS 16 §16Elements of cost: purchase price (import duties and non-refundable purchase taxes, after trade discounts and rebates); costs directly attributable to bringing the asset to the location and condition needed for it to operate as management intends; the initial estimate of the costs of dismantling and removing the item and restoring the site, when the obligation arises on acquiring the item or from using it during a period for purposes other than producing inventories.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• An entity imports a machine with a list price of {list_price}. The supplier grants a trade discount of {trade_discount} on the list price. The entity pays non-refundable import duties of {import_duties} and VAT of {recoverable_vat}, which it fully recovers from the tax authorities. What purchase price should it include in the cost of the machine?L1
• An entity buys a production machine on credit, invoiced at {invoice_price} by its supplier. It pays non-refundable import duties of {import_duties} in cash to customs. Record the initial recognition entry for the machine.L1