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Distribution expenses & Cost of goods sold

10 April 2010 4,772 views 5 Comments

Good day to everyone! Please, help me in the next controversial question.

IAS 2 requires distribution expenses to be accounted as expenses of a period instead of to increase cost of goods. It is quite obvious, however, if, for instance, a company incurs transport expenses to deliver its products to customers situated in other regions or even in other countries. In this case, in my opinion it would be wrong to reflect this transport expenses as “distribution cost” of a period for the following reasons. Firstly, the moment of completion of a deal and corresponding revenue recognition can differ from the moment of transport expenses recognition. It leads to the breach of  ”Accrual method” and IAS 18. Second of all, the sum of such expenses enhances Income (revenue) of the seller and in the same time is not included in cost of good sold.  Eventually, “swollen” trade margin confuses users of financial statements especially if the company has not made such kind of sales to other regions earlier.

What do you think about this issue?

Personally, I tend to capitalize such transport expenses and write off them only after the fact of a sale.

Best wishes,

Dmitriy.

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5 Comments »

  • ifrslist
    ifrslist said:

    [New Post] Distribution expenses & Cost of goods sold – http://www.ifrslist.com/2010/04/distribu...
    via Twitoaster

    # 10 April 2010 at 2:52 am
  • ifrslist
    ifrslist said:

    [New Post] Distribution expenses & Cost of goods sold – http://www.ifrslist.com/2010/04/distribu...
    via Twitoaster

    # 10 April 2010 at 2:52 am
  • IFRS List.com: Distribution expenses amp; Cost of goods sold — Accounting Blog said:

    [...] DBusiness wrote an interesting post today. Here’s a quick excerptWelcome to IFRSLIST.com, the free community where you can find resources, share experience, knowledge and ideas about IFRS, bAccounting/b and Auditing with more than 1.5k members. Sign-up and start a new discussion. … [...]

    # 10 April 2010 at 4:49 am
  • Wallace Consulting Group said:

    I know where you are coming from but the main point I think is that the distribution expenses don’t meet the concept of assets at the time they’re capitalized…true, writing them off as incurred may not help to present gross margin but I think you’d just have to explain that in the MD&A or elsewhere. Basically, it’s difficult to use the “accrual method” as a justification for much, if the basic asset/liability concepts aren’t met…

    # 12 April 2010 at 2:02 am
  • jafferyasim said:

    My opinion is that distribution cost relates to selling out your goods & if it requires substantial time for transportation the basis of recognizing sales does not change.We recognizes sales on the basis of risk & rewards relating to ownership. If those conditions under IAS 18 are met then we recognized sales & accrued its related expenses.

    # 12 April 2010 at 6:19 am

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