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Charging 3rd Party Warehouse for breakages

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Hi,

How do you account for breakages from a 3rd party warehouse - we only charge the 3rd party warehouse supplier value of the product, that value is held on the balance sheet. From a management accounting point of view which adds value but satisfies financial accounting

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By paul.benny
05th Jun 2020 14:20

Depends on the contract and the relative negotiating power of the parties. If you are only charging the warehouse provider 'cost', then you have a sale at nil margin. Where you show that in your P&L is a matter of choice/convenience.

Given the choice, I would probably seek a fee as well as the cost of the damaged item.

Dependent on the contract, you should also consider VAT. It may be a "sale" to the provider - and so standard-rated. Alternatively the charge may be liquidated damages, which are outside scope.

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By Huw_wm
06th Jun 2020 12:19

Thanks Paul,

In this case, and most of the cases it would be liquidated damages and therefore outside scope.

Essentially for me, when looking at the Operating Profit Margin, I would rather the contra be completed within COS, so that I do not see any changes to the margin evaluation. Although this is immaterial and not likely to change opinions, so I am unsure whether I am pushing for no apparent reason when the FD of the group would like the posting as Other Income of lets say £50 and the COS being £50 - net impact zero. Where as I am complaining that I would rather post to COS only, lowering the stock balance and increasing our cash balance. I think this is trivial, but I have started my argument now.

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