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In determining the cost of noncurrent asset, we have to deduct trade discount. How about cash discount (settlement discount)? Do we need to deduct cash discount as well?
No, cash discounts are shown as “Sundry Income” within the statement of profit or loss
OK?
But according to IAS 16.23, the cost of an item of property, plant and equipment
is the cash price equivalent at the recognition date. If we do not deduct cash discount, the cost will be higher than the cash price equivalent (the amount we actually pay).What do you mean by the expression “cash discount”?
This expression is normally applied to the situation where goods are sold on credit (maybe with a trade discount deducted from the “normal” price) but the seller also says that, in the event of settlement within, say, 7 days the buyer can deduct a further (say) 2% from the normal price as a cash discount (also referred to as an early-settlement discount)
Is your interpretation of the expression “cash discount” an amount deducted from the “normal” price because the customer is paying cash rather than buying on credit?
If the amount deducted is because we are paying cash rather than buying on credit then, yes, the amount to capitalise is the amount actually paid on the act of purchase
Andy, I object strongly to students asking me questions that are trying to catch me out or to test me. If you are so familiar with IAS 16.23 then why could you not have interpreted it for yourself?
And if you want an answer from me, then please give me ALL the appropriate facts accompanied by ALL the appropriate descriptions
Thanks
I’m sorry if I have offended you; that was not my intention. I asked you the question because I don’t know the answer. Your are right. I should have given you ALL the appropriate facts accompanied by ALL the appropriate descriptions in my first post. The fact is I asked the same question in another forum (in Hong Kong) and some said yes and some said no. I am confused. Someone said yes gave the reason (stated in my second post) and so i repeated it here.
Thank you for giving me the answer.
You’re welcome. But maybe some said yes and some said no purely because you didn’t give them the full story?
Anyway, no harm done and no (lasting!) offence taken
🙂
Hi Sirs,
I am wondering that:
– Under the guidance of IAS 02, the cash discount (settlement discount) shall be deducted from the cost of inventory when purchased.
Link for reference: https://www.iasplus.com/en/meeting-notes/ifrs-ic/not-added/2002/cash-discounts
– However, under the guidance of IAS 16, the specific guidance is refer to trade discounts that shall be deducted.So why the accounting treatment should be distinguished between the Inventory and PPE in the context that they are both refer to initial recognition on purchases of assets.
Thank you very much!
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