Costs of purchase

Learning objectives

• Identify the components of the costs of purchase: purchase price, import duties and non-recoverable taxes, transport, handling and other directly attributable costs, less trade discounts, rebates and other similar items.L1, L2
• Calculate the cost of purchase of a batch of inventories from an invoice and the incidental costs.L1, L2, L3
• Recognise the entry of a purchase into inventories.L1, L2

Normative references

• IAS 2 §10The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
• IAS 2 §11The costs of purchase comprise the purchase price, import duties and other taxes (other than those subsequently recoverable 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 deducted in determining the costs of purchase.

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

14 questions

• Trade discounts and rebates obtained from a supplier are deducted in determining the costs of purchase of the inventories bought.L1
• Ardoisine recovers from the tax authorities the VAT paid to its suppliers. It must nevertheless include that VAT in the costs of purchase of its merchandise inventories.L1
• Belvoir imports spare parts held for resale. Which of the following amounts forms part of the costs of purchase of these inventories?L1
• Corvelle buys a batch of glassware held for resale. Which of the following items are included in the costs of purchase of the batch?L2
• Ardelle, a tile wholesaler, buys a batch of floor tiles at a list price of {list_price}. The supplier grants a trade discount of {trade_discount_rate}% on the invoice. Ardelle also pays a carrier {transport} to deliver the batch to its warehouse. The VAT, which is recoverable, amounts to {recoverable_vat}. Compute the costs of purchase of the batch.L1
• The coffee roaster Brévanne imports a container of green coffee. The invoiced purchase price is {purchase_price}. Brévanne pays non-recoverable customs duties of {customs_duties} and port handling costs of {port_handling}. The supplier grants it a volume rebate of {volume_rebate} on this container. Import VAT of {import_vat} is fully recoverable. Compute the costs of purchase of the container.L2
• Calvène, a distributor of electrical equipment, imports {units} motors at a unit list price of {unit_list_price}, with a trade discount of {trade_discount_rate}%. It bears freight of {freight}, transit insurance of {transit_insurance}, directly attributable to the acquisition, and non-recoverable customs duties of {customs_duties}. Recoverable VAT amounts to {recoverable_vat}. Finally, Calvène spends {advertising} on advertising to announce that the motors are on sale. Compute the total costs of purchase of the batch and the unit cost.L3
• Dunelle, which buys materials and manufactures furniture, must determine the cost of its inventories. Which statement correctly describes the components of that cost?L2
• Dorvelle, a bicycle retailer, receives a batch of bicycles held for resale. The supplier's invoice, payable in 30 days, shows a price excluding tax of {purchase_price}, with no discount or additional costs, and VAT of {recoverable_vat}, which Dorvelle recovers from the tax authorities. Record the entry for the receipt into inventory.L1
• The industrial paper merchant Estrelle buys paper reels to resell them as they are. The invoice, payable on credit, shows a list price of {list_price}, a trade discount of {trade_discount_rate}% and recharged delivery costs of {transport}. The VAT of {recoverable_vat} is recoverable. Record the entry for the receipt into inventory.L2
• Fenouillet, a fabric wholesaler, receives an invoice showing a price net of discount of 50,000 and recoverable VAT of 10,000. Its accountant records: debit Inventories 60,000, credit Trade payable 60,000. What is the error?L2
• The cooperative Gaudrette buys 5,000 bags of fertiliser at 30 each, that is 150,000 excluding tax. The contract provides for a rebate of 6,000 on this batch, earned upon delivery, and transport to its silos costs 4,500. Its controller computes a unit cost of 30.90, that is (150,000 + 4,500) / 5,000. What is the error?L3
• Sorbier manufactures cosmetics. Which of the following costs must be recognised as expenses in the period rather than included in the cost of its inventories?L2
• On 1 February 20X2, Quintal, a boiler manufacturer, buys copper tubes. The supplier offers a price of {price_normal_terms} on its normal credit terms, or a settlement of {amount_payable} on 31 October 20X2, the option chosen by Quintal, which effectively contains a financing element. Quintal pays a carrier {transport} in cash to deliver the tubes to its factory. The reporting period ends on 31 December 20X2. Ignoring VAT and the settlement of the supplier, record the entry for the receipt into inventory and the entry for the interest expense of the period.L3