CHAPTER 09CONTAINERS' GOODS ON APPROVAL, C.O.D., VOYAGE ACCOUNTS, VALUE ADDED TAX AND P.A.Y.E.
CONTAINERS
THE treatment of containers (sometimes termed cases, packages, empties, drums, etc.) in the accounts will depend upon the policy of the individual concern. This may be:
1. Containers Non-returnable
(a) Not charged out. The charge for the containers in this instance will be included in the sale price of the goods. A Containers Account should be kept which will be debited with opening stock of containers and purchases and credited with closing stock, the balance, being the expense of containers during the period of the accounts, being written off as a distribution expense to Profit and Loss Account, or, if desired, being charged to A Trading or Manufacturing Account includes the costs incurred to prepare goods for sale.
(b) Charged out. Sometimes when containers are non-returnable, a separate charge is made for them. These charges should be entered in a separate column in the Sales Day Book or Journal, the total being credited periodically to a Containers Account as in (a) above, the balance of which account, being either a profit or loss on containers for the period of the accounts, being transferred to Profit and Loss Account.
2. Containers Returnable
(a) Not charged out. The double entry book-keeping will be similar to that in 1 (a) above, except that opening and closing stock will be divided between containers in the warehouse and those in the hands of customers. Stock must be brought into the accounts at cost, less adequate deprecia- tion. Further entries will be necessary in the books, however, in order to keep a check on containers. Each container should have an identification number, and columns should be provided in the Sales Day Books or Journals and in customers' accounts for these numbers. When goods are sent to a customer, the container number will be entered in the special column in the Day Book or Journal and posted to the column on the debit side of the customer's account. When containers are returned, the number will be entered in a book kept for this purpose at the gate; from this book it will be posted to the column of the credit side of the customer's account. Periodical cancellation of numbers appearing on both sides of the account will reveal the numbers of the containers still in the hands of the customer.
(b) Charged out. Containers are sometimes charged at cost but more usually at a price in excess of cost in order to cover depreciation. cooperage, repairs, and bad debts. Similarly, credit given for returns is often less than the price at which the containers are charged out. A time limit is often imposed after which containers are not returnable. There are two methods of dealing with these transactions in the books:
ACCOUNTANCY
(i) Containers Trading Account. A Containers Stock Account and a Containers Trading Account should be opened. Containers 'out' should be entered in a special column in the Sales Day Book or Journal and debited to customers' accounts, the total of the Sales Day Book or Journal column being credited periodically to Containers Trading Account Returns should be Journal and credited to customers' accounts, the total of the Day Book or Journal column being debited periodically to Containers Trading Account. The Containers Stock Account will be debited with the opening stock and purchases, and credited with the closing stock. Adjusting entries will be required, by crediting Containers Stock Account and debiting Containers Trading Account, for:
1. Containers retained by customers (the charge having already been credited to Containers Trading Account through the Sales Day Book or Journal as described above).
2. Depreciation of Stock and Stock destroyed, scrapped, etc.
At the end of the financial period, a certain number of containers will be still in customers' hands; customers have been charged for them and therefore Sundry Debtors will include this charge, the credit being in Containers Trading Account. Since these containers are returnable at a fixed price, a provision must be created to cover the liability to customers in respect thereof. This is done by debiting Containers Trading Account 'above the line,' the balance brought down being deducted from Sundry Debtors in the Balance Sheet. The Containers Trading Account may now be balanced off and the resultant profit or loss transferred to Profit and Loss Account.
Illustration 1
R Ltd. deliver goods to customers in cases (which are valued in the books at £0-15) charging them out at £0-30 each and crediting them if returned within a stipulated time limit at £0-20 each.
On 1st January 19.., there were 2,000 cases in stock and 4,200 cases in the hands of customers (all returnable). During the year to 31st December 19.., 3,000, cases were purchased at £0-25, 6,400 were sent out to customers, 4,600 were returned by customers, 60 were destroyed in an accident in the warehouse and 100 were sold as scrap for £5.
On 31st December 19.., 3,800 cases were in the hands of customers (all returnable).
Show the Ledger entries required in respect of the above transactions.
CASES STOK
Price
Quantity
Price
Quantity
£
19
£p
Jan. 1 Stock:
19. Dec. 31
Cases Trading Account--
In hand
0.15
2,000
300
With Customers
Cases retained by Customers
0:15
2,200
330
0-15
4,200
630
Cases destroyed
Dec. 31 Purchases
60
0.25
3,000
750
Cases Sold for Scrap
100
5
Cases Trading Account-
Loss on Cases destroyed and scrapped
19"
Stock c/d-
In hand-old
0-15
40*
6
new
0-25
3.000
750
With Customers
0-15
3,800*
570
9,200
£1,680
9.200
£1,680
19
Jan
1
Stock b/d:
In hand-old
0-15
40
6
new
0-25
3,000
750
With Customers
0-15
3,800
570
CASES TRADING ACCOUNT
Quantity £
Price
Ö„Ö€
19.
Dec. 31 Customers-
19. Jan. 1
Provision b/d-
Cases returned
0-20
4,600
920
Cases in hands of Customers
Cases Stock-
Dec. 31
Customers-
Cases retamed by Customers
0-15
2,200
330
Cases charged out
Cases Stock-
Loss on Cases destroyed and scrapped
19
Profit and Loss Account-
Profit and Loss Account
Loss on Cases destroyed and scrapped
Profit on Hire
4202
Profit on Sale
,330
Provision c/d--
Cases in hands of Customers
0.20
3.800
760"
10,600
£2,779
Price Õ§Ö€
Quantity
£
0-20
4.200
840
0-30
6,400
1,920
Jan.
19.. 1
Provision b/d-
Cases in hands of Customers
0-20
(For footnotes see p. 0905.)
19
10,600
£2,779
760
Alternatively, one account only may be employed by means of an additional column showing the cost price of all the cases sent out and returned, and the provision for cases still out.
CASES TRADING ACCOUNT
Price
£p
Quan- tity
£
Price
£
£p
Price Quan. £p
£
Price
£
tity
19
Dec. 31 Customers-
Cases returned
Cases Stock-
Cases retained by Cus
.tomers
0-15
2,200
330
Cases Stock-
19.. Jan. 1
Provision b/d-
0.15
4,600
690 0-05
230
Cases in hands of Cus-
tomers
0-15
4,200
630
0-05
210
Dec. 31
Customers-
Cases charged out:
Hire
0.15
4,200
630 0.15
6.30
Sales
0.15
2,200
330
0-15
330
Profit and Loss Account-
Loss on Cases destroyed
and scrapped
Profit and Loss Account-
Proht on Hire
Profit on Sale
19
Loss on cases destroyed and scrapped
19
420
330
Provision c/d-
Cases in hands of Customers
0-15 3,800
570 0-05 10,600 £1.590
190
£1,189
10,600 £1.590
£1,189
19..
Jan.
1
Provision b/d
Cases in hands of Cus- tomers
0:15 3,800
570 0-05
190
£330. The cases charged out have been subdivided for the purpose of the illustration, showing clearly the profit on the cases sold,' i.e. retained by customers, at The profit on hire is 4,200 at £0-10-£420 (charged out at £0-30, credited on return at £0-20).
case no transfer from one account to another would be required). As an alternative, the "loaded" columns could be put in a separate account and the first columns written up as part of the Cases Stock Account (in which
(The loaded' columns are shown in italics.)
Alternatively, one account only may be employed by means of an additional column showing the cost price of all the cases sent out and returned, and the provision for cases still out.
CASES TRADING ACCOUNT
Price
£p
Quan- tity
£
Price
£
£p
Price Quan. £p
£
Price
£
tity
19
Dec. 31 Customers-
Cases returned
Cases Stock-
Cases retained by Cus
.tomers
0-15
2,200
330
Cases Stock-
19.. Jan. 1
Provision b/d-
0.15
4,600
690 0-05
230
Cases in hands of Cus-
tomers
0-15
4,200
630
0-05
210
Dec. 31
Customers-
Cases charged out:
Hire
0.15
4,200
630 0.15
6.30
Sales
0.15
2,200
330
0-15
330
Profit and Loss Account-
Loss on Cases destroyed
and scrapped
Profit and Loss Account-
Proht on Hire
Profit on Sale
19
Loss on cases destroyed and scrapped
19
420
330
Provision c/d-
Cases in hands of Customers
0-15 3,800
570 0-05 10,600 £1.590
190
£1,189
10,600 £1.590
£1,189
19..
Jan.
1
Provision b/d
Cases in hands of Cus- tomers
0:15 3,800
570 0-05
190
£330. The cases charged out have been subdivided for the purpose of the illustration, showing clearly the profit on the cases sold,' i.e. retained by customers, at
The profit on hire is 4,200 at £0-10-£420 (charged out at £0-30, credited on return at £0-20).
case no transfer from one account to another would be required). As an alternative, the "loaded" columns could be put in a separate account and the first columns written up as part of the Cases Stock Account (in which
(The loaded' columns are shown in italics.)
CONTAINERS, GOODS ON APPROVAL, C.O.D., ETC
If the new stock is written down to £0-15, the closing stock credited would be £1,026 instead of £1,326, and therefore an entry for depreciation (£300) would be made on the credit side of Cases Stock Account and debited to Cases Trading Account. This would be followed by a credit of £300 to the latter account and a debit to Profit and Loss Account; or, more properly, a decrease of £300 in the transfer of profit to Profit and Loss Account, since depreciation should be taken into account before the profit on Cases Trading can be ascertained.
Cases sent out during the year Add already out on 1st January
6,400
4,200
10,600
Less returned
returnable
4,600
3,800
8,400
Balance sold to customers
2 Cases sent out during the year
Less cases sold to customers (as above)
.. Cases out on hire during the year
Profit on Hire, 4,200 at £0-10 (£0-30 less £0-20) Profit on Sale, 2,200 at £0-15 (£0-30 less £0-15)
2,200
6,400
2,200
4,200
£420
£330
* Loss on cases destroyed, 60 at £0-15
£9
Loss on cases scrapped, 100 at £0-10.
(The sale price of scrap £0-05 as against cost £0-15)
£10 £19
It is assumed that the new £0-25' cases are intact and that no claim exists for loss of cases by the accident in the warehouse.
Stock of Old Cases on 1st January
Less Sales to customers
Destroyed Scrapped
6,200
2,200
60
100
2,360
3,840
The opening figure of £840 (4,200 at £0-20) is provided in respect of the company's liability to customers for cases not yet returned which have been charged up at £0-30 in the
previous year.
Sunilarly, a provision must be created at the end of the year for the same purpose. Sundry Debtors will include the charge for 3,800 cases at £0-30, so that the Provision of £760 will be deducted therefrom in the Balance Sheet to show the true Sundry Debtors figure.
Alternatively, the two accounts may be consolidated into one, but generally this method is not recommended.
(ii) Containers Reserve Account. In this alternative method of accounting for containers, two accounts are utilized: the Containers Stock Account and the Containers Reserve Account. The Containers Stock Account records all entries pertaining to the stock of containers, while the Containers Reserve Account is dedicated solely to tracking the actual stock movements to and from customers. The entries in Sales Day Books or Journals,
ACCOUNTANCY
Returns Books or Journals and customers' accounts will be similar to those described in the previous method.
The Containers Stock Account will be debited with opening stock and purchases and will be credited with closing stock and stock destroyed and scrapped. The Reserve Account will be credited with opening provision for returnable containers and with containers charged out to customers, and will be debited with containers returned and closing provision for returnable containers. When containers are retained by (i.e. sold to) customers, hey must be eliminated from Stock by crediting Stock Ac- count, the corresponding debit being to Reserve Account (as an offset to the credits to that account for containers charged out). When containers are returnable at a smaller price than that at which they are charged out, there will be a balance on Reserve Account representing profit on hire which must be transferred to Profit and Loss Account by debiting Reserve Account; the corresponding credit may be direct to Profit and Loss or to Stock Account whence it will be transferred to Profit and Loss along with the balance of that account, which will show the profit or loss on containers sold to customers, scrapped and destroyed.
It should be emphasized that the entries mentioned above for profit on hire are confined to the money columns as the quantity of stock is not affected, whereas those for sales of containers must include both quantities and money...
Illustration 2
Using the same data as in the preceding illustration write up Cases Stock and Cases Reserve Accounts.
As will be seen by reference to the previous illustration, most of the entries in the Cases Stock Account and Cases Reserve Account are the same as in the Cases Stock Account and Cases Trading Account respectively. In addition, there are the two cross transfers (Dr. Cases Reserve, Cr. Cases Stock) for Profit on Hire (money only) and for Sales to customers (quantities and money). [For the guidance of the student, these transfers are shown in heavy type. See p. 0907.]
Illustration 3
On 1st January 19.. Stock of Containers in hand was £800 (valued in the books at cost less 25 per cent), and £120 in the hands of customers at invoice price, which is cost plus 50 per cent.
For the year ended 31st December 19.. containers were charged out at cost plus 50 per cent and full credit was given in respect of those returned in good condition.
Containers sent out during the year were £1,600 (invoice price) and Returns (all in good condition) £1,000. Customers retained (and were charged up) Containers at an invoice price of £30. Closing Stock of Containers in hand at cost £666-67.
Write up Containers Stock and Reserve Accounts.
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