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I believe the double entry for an early payment discount is, Dr creditor Cr other income (discount), but i recently watched a video on youtue in which they were explaining the entry as Dr Creditor Cr inventory and they gave the logic that this way inventory is stated at its true purchased cost. can you please explain the right treatment also explaining the logic. thanks !
yup youtube video is right. Inventory must be stated at a cost it is purchased.
Hi Martynas
It’s good of you to join in here but I advise you to beware. Nicedude is already qualified as ACCA. He has already posted this same question on the F3 ask the tutor page and had a response from John Moffat.
There is a suggestion that he is connected in some way (through work?) with a previous poster with the moniker Andy who is also pursuing this topic and who also has had a full response.
The response given both to Andy and to Nicedude is that, for the purposes of the ACCA exams, it appears that the examiners and the approved publishers are all in agreement that an early payment discount should be treated by the buyer as an “other income” and by the seller as a “finance cost”
To clear up the matter, hopefully finally, the Australian Accountants have proposed that where such a discount is offered and the buyer takes advantage of that offer, the discount should be credited against the stock. At the same time the seller makes no entries to reflect the reduced amount due and received.
Where however the buyer does not take advantage of the discount, and the “full” amount is paid, then the settlement discount that had been available but was not taken is now an item of finance income for the seller.
Martynas, you state quite categorically that Nicedude is correct and that the settlement discount should be deducted from the cost of the inventory. You have stronger and more definitive ideas about this than the IFRSIC. That august body refrained from answering the Urgent Issues Question when posed by the Australians, yet you are prepared to come out with all guns blazing.
May I ask that you keep your opinions to the general forum pages and leave the “Ask the tutor” questions to be answered by the tutor
Thank you 🙂
Nicedude – why are you doing this? You asked the question on the F7 “Ask the tutor” forum and you were given a full response. You say that you have already passed your P2 exam and that in fact you are qualified. You merely ask because it’s an issue for you in your employment.
Why not follow this as a suggestion ….. contact the ACCA (your professional body) and or the International Financial Reporting Standards Interpretation Committee and ask them? Far more definitive than either John Moffat or Mike Little.
Time to move on?
Mike, i have been told by f3 tutor to ask the question here and i have no idea that this question is raised by some other guy as well. i just saw some video and remembered what i learned during ACCA studies. i am sorry for choosing opentution platform to clear it. i won’t bother you again.
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