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interest free loan = cost of sales?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › interest free loan = cost of sales?

  • This topic has 1 reply, 2 voices, and was last updated 2 weeks ago by Stephen Widberg.
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  • Author
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  • May 14, 2023 at 8:06 pm #684351
    Nikko
    Participant
    • Topics: 6
    • Replies: 22
    • ☆

    McVeigh, a public limited company, has a reporting date of 31 May 20X3.
    McVeigh granted interest-free loans of $10 million to its employees on 1 June 20X2.
    The loans will be repaid by the employees on 31 May 20X4 as a single payment. On 1
    June 20X2, the market rate of interest for a two-year loan was 6% per annum.
    At the reporting date, the credit risk associated with the loans was low.
    The only accounting entry posted by McVeigh in respect of the above transaction was
    to charge the $10 million cash outflow to the statement of profit or loss as a cost of
    sale.

    Why is a loan to employees treated as a cost of sales???

    Even the answer does not say this treatment is wrong. I thought normally cost of sales would be that which is related to their primary business activity.

    May 15, 2023 at 6:45 am #684358
    Stephen Widberg
    Keymaster
    • Topics: 13
    • Replies: 2962
    • ☆☆☆☆☆

    Assume manufacturing for now.

    If staff are production workers – COS.

    If staff are distribution or admin – operating expenses,

    So the charge will go wherever the related wage expense would go.

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