One of my clients (a wine trader) had year end stock in a bonded warehouse. The valuation obviously includes cost plus freight, storage and duty paid up front (on beers). Duty on the wine is not payable until it leaves the warehouse apparently. Question is - should the stock valuation include unpaid duty on the basis that it was almost certain to be incurred and the event causing it (ie importing from France) had already happened?
If so, the double entry would be Debit Stock and Credit Accruals, but can you include future costs in the stock value? Does the standard permit this?
Chris
Replies (4)
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Do not include
in my opinion.
The liability to duty is not incurred until it is withdrawn from bond and so there is no present obligation. It would be possible for the trader to sell the stock in bond and never incur the duty. So the effect of including duty would be to goross up the blanace sheet for an uncertain (albeit probable) future cost.
Agreed
SSAP9 applies. The stock should be valued at the lower of its cost and net realisable value. Cost is defined in SSAP9 as being "that expenditure which has been incurred in the normal course of business in bringing the product or service to its present location and condition". This is the normal course of the business, the present location is the bonded warehouse, and the present condition is duty unpaid.
If your client's wine disappeared from the warehouse tonight, it wouldn't be your client who was liable for the excise duty. As Paul says, it is also possible for your client to sell the goods to someone else who holds them in the same condition, or to re-export them without the excise duty becoming payable.