In this work, the different possibilities of giving value to income, output and the existence of inventories in commercial companies will be developed.
Each of these issues will be addressed in accordance with the provisions of the so-called traditional or cost current and by RT 10 of the FACPCE However, the current professional technical standard (RT 10 of the FACPCE) does not adopt a uniform criterion regarding; consequently, it will be indicated when it mainly departs from the current value model, when valuing inventories.
In Accounting, as in other disciplines, “the concept” is elaboratedwhich is that instrument argued, debated and included in a specific theoretical model, along with other tools, to solve a representation drawn from real life. Legal and professional accounting standards create their own model and many times the chosen instruments do not respond to what the doctrine conceptually created, nor to the original model that included them. These (norms) have their origin in a particular context that captures the economic, political and social moment that is lived, being able to mix interests, which have nothing to do with what the technical discussions carried out by prestigious professionals debate, with no other interest than that of provide a better solution to the problems that this technical discipline has.
I thought it necessary to review, in the first place, some elementary concepts used in the accounting discipline, which help to understand the central theme developed in this work "inventories". The issue raised is complex and perhaps, in some aspects, even very difficult to carry out in a practical way, however this does not enable us to ignore the theoretical and technical basis of what is intended, especially by RT 10 of the FACPCE (for at least at the points where it coincides with a defined current).
While some theoretical works hint at the possibility and necessity of charging merchandise for the costs caused by having the goods on the shelves (permanence in equity), the accounting practice of a commercial company tries to solve, with medium efficiency, the charge of the external costs incurred in order to incorporate the asset and put it in a position to be sold. This work also proposes an intermediate possibility of imputation of external and internal costs to inventories, viable from the point of view of their practical application, without fundamentally departing from the technical concept.
Need for the development of elementary accounting topics carried out in a preliminary way
Although the central theme of this work is “inventories in commercial companies”, I consider it necessary to introduce some concepts in order to understand the breadth, and at the same time the particularity, that the concept of the asset contains, the moment from which it is considered that the wealth of the company has been modified, that the freight to transport the merchandise constitutes a cost and not an expense, that the limit value to the asset values does not respond to a capricious imposition, among other issues that it is essential to differentiate (these themes are closely related to the subject of inventories).
Many times, when transmitting the application of current accounting regulations, we forget to develop the conceptual because we believe that explaining what is required for the profession constitutes the limit that indicates how far we have to teach. It is irrelevant to describe the provisions, for example in point 3.1.7. of RT 10 of the FACPCE (results of exchange operations at current values), if who does it does not know that it is a cost.
2.1 The Entity: Legal and Economic Unit.
A legal entity needs an investment to fulfill its objectives. During the life of the company this investment will be financed not only by the partners but by third parties.
It is very common that when we refer to investment and its financing we only think of companies that pursue profit, however the following equality is also valid for example, for civil associations. So, an entity that pursues profit or not, always presents the following situation:
(See PDF)
2.1.1 Investment
We will call the investment of any entity an asset. The professional accounting standard defines the asset verbatim as " the assets, rights and items attributable against income attributable to future periods" (RT 8 F. ACPCE).
(1) Zgaib Alfredo, Accounting Puzzle, de. FEA of Comahue
If what you want is to transmit a concept, you should not start with this rule, not because it gives an erroneous definition, but because it is aimed at those who are supposed to understand what goods can be classified as economic resources.
It includes in the company's assets, money, securities representing value, tangible assets, franchises, other intangibles, and rights to receive money (debtors for sale), services (rents paid in advance) or goods (advances to suppliers).
Every asset constitutes an economic resource for the company, that is, it has an economic utility, whether it is money, it can be converted into it, they are goods that are expected to be sold or used; technically they are said to have an exchange and / or use value.
The exchange value of a good is called "net realizable value " and the use value "economic use value". The higher of the two constitutes the recoverable value, which is basically the valuation limit for assets (2).
The net realization value is formed by the estimated sale value of the asset, less the expenses that this possible operation would generate. For its part, to determine the value of economic use, the economic destination that the asset has for the entity must be taken into account, determining the current value of the probable future income that it will directly or indirectly produce.
In reality, the study and application of procedures that allow determining the value of economic utility with greater reasonableness is in debate, in case of not having it, the limit to the value of an asset even in fixed assets, is given for your VNR
The merchandise destined for resale (central theme) has an exchange value and its use value is null, while the furniture and supplies (or other use goods) have both values. If a good loses its exchange and use value, it no longer belongs to the group of the company's assets. An example of this is the fixed assets unaffected by the activity that have no exchange value or even, the same is negative. But if it ceases to provide services and retains an exchange value, it will continue to be part of the company's total investment, exposed in the Other Assets item.
It is very common to learn how an asset should be valued at the end of the year, however it seems essential to mention that this assigned amount should not exceed that of its limit value. In the current professional accounting standard, not taking into account what the recoverable value of a good means, implies not knowing the very concept of the asset.
(2) RT 10 FACPCE, point 2.5
The value assigned to a particular asset should not exceed its recoverable value, that is, the amount reported in the future by it (asset), should be equal to or greater than that shown in the accounting (unless a exceptional and unforeseen situation). The importance of this limit is not only technical, but responds to a logical mechanism. Let's imagine that we have valued the asset (in each of its elements) of a company at $ 500,000 and that its present value of recovery in case of doing it or through its economic use is $ 90,000. Failure to comply with the indicated, would have a large part of the total investment that would not report a future possibility of economic benefit to the company.
I want to clarify the following: the accounting technique is not in a position today to be able to capture all the economic resources that the company has, such is the case of those intangible elements that, despite having the characteristics of an asset, cannot be accounted for at the moment when they are self-generating (high subjective component). This is not the topic to be dealt with in this work, but it is fair to specify that the value of the asset that the accounting exposes does not necessarily reflect the totality of income generating resources that the entity has. This is another essential element that typifies an asset; be susceptible to economic valuation.
When we give the concept of the asset, we insist on highlighting the importance of the property of the asset, but for what has been mentioned, it is not enough just to have it. The company could have assets of its own such as merchandise, but if they are damaged and their exchange value is zero, then despite responding to all the characteristics that typify an asset (assets, property, possession, etc.) for not being economically useful ceases to belong to this group.
Purchase value $ 150 Limit value $ 0 It is not active, since it cannot exceed its value
limit; that is $ 0
It is vital that it be understood that the limit value does not constitute a valuation criterion in the current accounting model; it is independent of it. Therefore, when be valued at the closing of the exercise to exchange goods company, the value of them never surpass the economic benefit is expected to report to it.
The use of limit values will be specifically developed in each particular stream in question (traditional theory - cost or minor market; RT 10 of the FACPCE - recoverable value). If this concept was clear, it will be possible to understand the development that I carry out later, in relation to the cause of why some goods are valued at the closing of the fiscal year at their VNR value (exit value) and not by their replacement cost. (input value).
If we continue listing the characteristics that an asset must meet, we find that it does not have to come from a purchase or a contribution, that is, it has generated a previous cost for the company. Anyone who thinks otherwise will not include in the company's assets a land received as a donation or an asset of use acquired with a reserve of utility destined for that purpose. In the case of inventories, the most common thing is that they enter the assets of the company through a purchase or by contribution of its partners.
Finally, when referring to the asset, we refer to the elements of ownership and free disposal that the company has of them, it is not enough to simply have ownership. If the company has merchandise ordered for sale on consignment, it cannot count them as part of its assets.
The free disposition that the company has of the good is necessary to be able to achieve the economic fruit that it reports. Let us suppose that a company has imported motors, but by irradiating a gas not allowed in Argentina, customs stops its passage; the company owns the property, an invoice indicates this and there are no possibilities of returning or reselling them in the country of origin, since these goods are confiscated. In other words, they do not have an exchange or use value, so there will not be an asset.
2.1.2 Modification of Net Equity
An entrepreneur needs to know if the company is developing in a favorable or unfavorable way, if its investment had returns or not. Although the objective pursued by accounting (especially that which translates the assets and results of the company to present values, to current wealth) is not simply to determine a result, I dare to affirm that this is the raw information that require the owners of the entity.
Suppose that the pesos invested by the partners at the beginning of the accounting year was $ 100,000, that during the year they did not make new subscriptions or capital withdrawals, and that the net equity ends with $ 120,000. It can be concluded that there has been a change in the initial wealth invested by the partners. In this brief static analysis between the capital invested at the beginning of the fiscal year and the one invested at the end of the year, by operations other than those carried out with the partners, we introduce ourselves in the results that the company has generated
When a financial capital to be maintained is mentioned in an accounting model, the total pesos invested by the partners in the company are being quantified. If, at the end of a fiscal year, the amount of net equity is less than that held at the beginning of the same, the partners did not generate any movement of subscriptions or withdrawals, the original amount (invested) was not maintained, then the result is you know, it was negative.
2.1.3 Dynamic approach to company results
Income: there is consensus in considering income as any increase in assets or reduction in liabilities that has been produced by an operation of exchange of goods, provision of service or any activity related to the entity's principal.
Expenses: it is the necessary economic sacrifice that the company made to achieve the income, they imply in any case a diminished asset or an increased liability.
Fowler Newton, differentiates income from profits and expenses from losses (losses). Although the final effect on the company's net worth is the same, the origin is different. While the income has a cost, the gains are capital increases at no cost, for example, a donation received or the positive result of holding an asset (opinionable topic). While expenses are incurred to obtain an income, the losses do not have an income as a counterpart. An example of the latter is the bad debt caused by a debtor or an incident occurred.
Perhaps the following concepts can be agreed:
(3)
But then, will a cost never go to the Income Statement? What is the difference between a cost and an expense?
Answer: The difference is given by the time these concepts appear in the company's Income Statement.
If these concepts are clear, it can be understood that a packaging or freight originated from the purchase of merchandise is a cost (economic sacrifice made by the company to incorporate an asset) and will remain in the asset until the item has been sold. good (income produced).
The commercial companies law, in its article 64, refers to the results, as a profit and loss chart for the year. It establishes the way to present the various items of results but, for observation and comparison, it includes the adjustments of results from previous years. Although it is necessary to know the causes of these adjustments, in general they should fall on the previous exercises by virtue of the application of the "principle of the accrued" that in the next point is developed.
2.1.4 Time when a quantitative change in equity is recognized
For the purposes of assigning the different results produced in the company, the accrued principle establishes that "the results must be charged to the corresponding fiscal year, without considering whether they have been paid / collected". With this principle, the ancient accounting criteria of what is received is discarded (although the latter is still in force in the settlement of income tax for certain types of income).
The central theme will be developed by continuously making a comparison between the provisions of the traditional trend and the current standard applicable to this topic (RT 10 of the FACPCE). Each one of them uses the accrued principle, however they differ when establishing from what moment the modifying equity variation occurs through the result. In this brief development it will be observed that the differences between one and the other model are generated fundamentally when dealing with income.
The Traditional Current: it is supported by the so-called Generally Accepted Accounting Principles (VII Assembly of graduates in economic sciences held in Avellaneda in 1969) and among them define the model, fundamentally the GAAP (4) "cost, performance, prudence and accrued".
GAAP:
Principle of prudence: establishes in relation to the positive results that
a) - On two asset values, the lesser must be taken
b) - Gains are only recognized when they have been realized.
(4) Generally Accepted Accounting Principles
When is a gain considered realized according to this doctrinal approach?
Principle of realization: When the operation has been perfected, both from the legal and economic point of view, which in the sale of goods and services generally occurs with the delivery of the good (tradition of good - theory of contract) or the effective provision of the service.
Conclusion: the traditional current only accepts a gain when it is realized; therefore, the increase in value suffered by a good for remaining in the assets of the company is not considered as such, since there was no exchange operation. Let's go to an example, if you have merchandise whose acquisition cost was $ 105,000 and today it costs $ 118,000, the value to expose of that asset under the principle of prudence will be $ 105,000; Because the lowest has been takenon the two values of the same good (cost or market (5)).
If $ 118,000 had been taken as the value of the goods, it would have to be considered a profit, and in addition to violating the principle of prudence, it would not be complying with the principle of realization or cost.
- The gains come from perfected operations. The simple holding of assets that increase their value is not accepted as a gain, since there is no exchange operation (a special treatment deserves the holding of foreign currency even in this doctrinal current).
Prudence: establishes in relation to negative results that:
a) - The highest value is taken over two liability values (does not mean authorizing the generation of non-existent or overvalued liabilities).
b) - Losses are recorded as soon as they are known.
In other words, in this case it is only enough to know that there is a quantitative decrease in net worth to record it for accounting purposes, so this current does accept the negative holding result derived from a decrease in assets or increase in liabilities.
The doctrine of current values: unlike the traditional current, the past cost does not matter but the present one; It is intended to better show the current wealth of the company. In this current, not only the results from exchange operations will be recognized, but also those derived from the holding of assets, which see their value increase for market or other reasons., as long as those values allow to display the current wealth possessed. The foundation in this current is given that the change in the value of the asset will be recognized at the moment in which the fundamental fact that generated it has occurred, taking into account the process of advancement of that evolution.
(5) The limit to the value of the asset in this current is not given by its recovery value, the procedure is different and will be developed in the central theme.
As a conclusion to this introductory part, we can say that, if the valuation criterion is current values, both the negative and positive holding results are accepted, the latter despite the fact that there was no exchange operation. In relation to this issue, the professional accounting standard adopts a hybrid approach. For example, in the particular case of fixed assets, the highest value from an increase determined by the difference between its present value and the value recorded at constant values, would have to be part of a holding gain. In RT 10 of the FACPCE, this higher value will be imputed to a net worth reserve (transitory rule).
Another example of departure from RT 10 of the FACPCE to the doctrine of current values, is the cost of sale, because it is not mandatory (for most companies) that the current cost of sale is used, that is, the next to enter. As for sales credits, there is the possibility of valuing them at cost value, that is, in the same way that the traditional current would. It would be more correct if the body of technical provisions is compatible with a defined current; As it is not, the complication is present.
B Treatment of inventories in commercial companies
- Inventories and cost of goods sold
3.1 The value of income to the patrimony of the merchandise
theoretical aspect - traditional criteria and RT 10 of the FACPCE
The treatment carried out by the traditional current, with respect to the entry of inventories for resale, is as follows: "the income value of the goods includes the value of the purchase of the good, plus the expenses necessary to put it up to deposit or available to the buyer. ”It also advises to deduct from the purchase value the commercial discounts achieved, but not the cash discounts, which will be recorded in an income statement. With respect to financial interests, these must be recorded separately from the value of the good, so that they do not form part of the cost of it. It derives from the standards that accompanied the GAAP, which in industrial farms, the interest of own or third-party capital should not be computed, these being part of the financial expenses (6).
RT 10 of the FACPCE in point 2.4 establishes in this regard that: the cost of a good is necessary to put it in a condition to be sold or used according to the destination, computing the value of the good at the price of cash operations. In other words, it includes the portion assignable to cost, of external and internal services that intervene in the purchase, transfer, deposit, etc. operation.
a) - External services included in the cost: freight, insurance, commissions, packaging, etc.
b) - Internal services included in the cost of income: this is an innovation that introduces the technical standard, including consequently (such as cost and no expense) the allocable portion of costs of the purchasing and quality control sector, such as wages, loads social, amortization of fixed assets of the sector, among others.
When RT 10 of the FACPCE refers to the fact that the income value of the asset must be cash, and if it is not known, it must be discounted at a representative market rate, it proposes to disaggregate the implicit interests contained in the purchase value. term (except those goods whose production, assembly or completion lasts over time). Now, it could be that the counted value of the good does not coincide with the current value of the same in a given time; so for example, if the purchase is made for $ 100 invoice value, they make a financial discount of $ 10, but the current value in the plaza of the good is $ 95, the merchandise should enter for $ 95, and a financial result of $ 5. RT 10 of the FACPCE does not differentiate between the cash value and the current income value of the assets,so also in this case, it could move away from the theory of current values at the time of incorporation of the goods. The coincidence between both values would take place under stable market conditions, regarding the supply and demand of goods, liquidity, etc.
The differences between both models lies, fundamentally in the treatment of the implicit interests in the event that the original operation contains them, and in the inclusion of internal charges in the cost of the property. The traditional current does not determine that the asset must be registered when entering the assets of the company for its cash value. Consequently, if the purchase value hides an implicit financial interest, it should not be segregated (GAAP objectivity), although the treatment of these in general line is similar in one model and the other. If, on the other hand, the interest is explicit in the operation, for what has been stated above (unless its production or assembly lasts over time), the registration will coincide both in traditional accounting and in the provisions of RT 10 of the FACPCE
(6) The capitalization of interests on the third party capital was allowed and under certain conditions, in the case of works in the construction period (VII Assembly of Graduates in Economic Sciences)
When I mention the similarity of both models in general terms, I am not affirming that they are fully coincident in the treatment of financial charges, since in certain particular cases, RT 10 of the FACPCE establishes as mandatory (7) the activation at the cost of the interests coming from the external financing, for example in the elaboration of grass, boats and other similar ones (point 2.3 subsection b of RT. 10).
Therefore, based on what has been developed so far, in both streams there are possibilities to activate the costs of external financing. In the traditional current it is allowed when it comes to construction works, but the charges will be made according to the specific financing applied to it or the goods; meanwhile, in RT 10 of the FACPCE it is mandatory when it concerns goods whose production, assembly or construction lasts over time, but in this case the activation of the interests refers to the portion of the property in question in relation to to the total investment (asset).
Finally, the interest of the own capital is only contemplated with optional character in the RT 10 of the FACPCE not being advisable (particular norms) to take it into account according to the traditional theory.
The other substantial difference lies in the fact that, while the traditional current activates external charges until the asset is placed on deposit or held by the buyer, the current regulation in Argentina (RT 10 FACPCE) favors the distribution of the cost of internal charges that place the well able to be sold.
(7) Only the Professional Councils of each province have the legal power to create professional accounting standards.
Practical example (See PDF)
It could happen that when applying RT 10 of the FACPCE, when determining the known cash value (different would be the case in which the cash value is unknown and the value of the good is discounted at a relevant market rate) the value is not achieved. stream of good. In other words, if the current price of the merchandise purchased is $ 910, the accounting record that would be based on the doctrine of current values should be as follows:
3.2 Practical aspect- RT 10 FACPCE-Laboratory analysis (cost of sale at current values is not used in this exercise)
It is difficult to refuse the proposal established by RT 10, since in the laboratory field it is ideal to have the cost of a good to resell, which includes the value of the expenses of internal and external services incurred, in accordance with explained in the first part. In this way, we would have the approximate cost that would be imputed against the income that is achieved by selling the property.
Traditionally, attempts have been made, with medium success, to charge in the commercial accounting (not in the cost accounting) the services external to the acquisition value of the merchandise, but the costs of the purchasing and quality control sector have not (this topic will be developed at the end of this chapter).
Let us assume the following accounting exercise, applying RT 10 of the FACPCE In this case, the cost of sale will not be imputed according to the provisions of point 3.1.7 of RT 10 of the FACPCE, but will use the option established in the operative part of the FACPCE Governing Board
In other words, the cost of sale will not necessarily be the cost of the moment in which the transaction was made; It will not be the current cost of sale (subject that we will deal with in a particular way later).
Corporate purpose of the company: Resale of household items.
(8) See in this work “VAT on inventories”.
Clarification: in reality, RT 10 of the FACPCE, referring to the fact that the value of income to the assets of the assets must be made at their cash value, establishes that the interests implicit in the value of the assets are removed through the procedure called segregation. Consequently, when the purchase is settled on 04/07/95, the cash price should be known or, failing that, discounted, assuming an implicit interest in the financing at a relevant market rate.
We assume that the cash value of the televisions is $ 16,650 (17,150 - 500) taking into account that the operation from its origin posed a financial discount of $ 500 if said purchase was paid within 10 days of being made; the correct journal entry (since the previous one failed to record the cash value) should be:
We continue with the example set out (if the procedure described above has not been carried out, the accounting record of the credit note will function as an adjustment to the cost of the merchandise for having omitted to record it at its cash value).
(9) An increase in the Tax Debit can be used, coinciding with the VAT law, art 10, although in the accounting aspect it will depend on the tax treatment, either by the way it is included in the VAT book or externalized in the sworn statement. monthly.
If the traditional doctrine had been applied, the way of registering the purchase and the credit note received for the financial discount would vary until what was done; however, when valuing and exposing at the end of the year the information contained in the inventories item, the difference is important.
3.3 Problems of practical implementation.
The previous laboratory sample denotes, on the one hand, what would be optimal to apply with respect to inventories, but the complexity that this generates (despite the computer systems), maintaining the physical cost of the good, its possible later modifications and the charge of the external services related to it. Returning to the first objective posed by this brief work, I am convinced that it is necessary for the student to know the concept of "economic sacrifice" in its full complexity (as developed in the previous point).
If in developing this topic I raise the difficulty of application first, I will have to teach you what is generally done in practice. But if the explanation remains in the implementation problems, future professionals will not have valid instruments to modify reality, even when these (instruments) are inefficient.
I insist: even in commercial companies you have to form a cost sector, if you are interested in having this information. Business practice has to solve many problems on a daily basis and it is probable that, because it is overflowing, it will not provide what should be done, but what can be done in each case.
The theoretical approach of the mentioned procedure is not proposed, only that in daily practice its application is complicated. The difficulties grow when assigning the cost of internal services for the purchasing and quality control sector, but the latter refers to the closing information; which does not mean that it is not done in shorter periods if it is intended to generate information for internal use.
In the example, it was not abused to include the cost movements suffered by the television, that is, it is common that in each product that the company has to resell, the debit and credit notes intervene after a purchase invoice. The practical panorama is complicated in case of having stock cards or a permanent inventory system, despite the use of computerized systems; Let's imagine a store, that has to review the value of income and the exits for sales of each unit, before a change produced in it.
It is common to note the absence of freight accounts, packaging or other external services when exposing the information required in the annex to article 64 of Law 19550, but it is not verified that a correct and reasonable allocation of these costs has been made to outputs or stocks. Regarding the inclusion of internal costs, a proposal for possible application is presented at the end of this chapter.
3.3.1 Proposal for intermediate application
I am very concerned about the practical way of assigning costs to the income value of inventories to comply with the provisions of RT 10 of the FACPCE. I am referring to the company that has a permanent inventory system and that has variety, quantity and different qualities of merchandise.
The problem is to include the value of the physical units and that of intangible services in the inventory sheet during the fiscal year. The entry and exit of the goods could be recorded for their physical value and in periods of monthly or annual valuation, the charge for external costs could be assigned, thus separating the value of the good from the accessories that allow achieving a cost value.
I want to emphasize that I am referring to the value of income to the equity of inventories, which does not mean that it is the final cost of sale at the time of accounting for the output or value the final existence. When the cost of this asset is required, it will be made up of the sum of the purchase value plus the intangible services that make up its cost.
The following is presented:
Demonstration of an alternative that treats the income of inventories differently from the assets of the company and that after an adjustment if desired monthly, the external service charges are assigned to the merchandise in stock and to the cost of sale.
Let us recall the accounting balance of the following accounts applying RT 10 of the FACPCE, movement by movement.
In this alternative, it is proposed to use a movement account for the intangible external charges of the merchandise (in the example for freight, packaging, etc.) and then assign from this account the part corresponding to the cost and physical existence in stocks. It is vital to clarify that this proposal that tries to satisfy practical needs does not mean in any way to affirm that the merchandise only has physical value; In the theoretical concept, to achieve the cost value of inventories, the intangible suffered or to be suffered must be added to its physical value to incorporate that asset and put it in a condition to be sold.
In reality, the movement account does not have a very defined technical concept, but its usefulness and operation do. I would use it as transitory - pending specific imputation, since I cannot assign when entering it, which part will go to the cost and which to the final existence. The purpose is to separate the physical value, which will be your income value in stock cards, from the intangible that will be assigned when required.
Following the example - accounting record during the exercise:
Then the movement account should be downloaded, for this the estimated cost of a television should be determined at its cash value.
| Its unit cash value is known to be… $ 333.00 |
| that by way of freight ……………… $ 3.50 |
| that for packaging …………… $ 3.00 |
| Total estimated cost per unit …………………. $ 339.50 |
How many televisions are left in stock?
Answer: 49 units left. So 49 * 339.50 = 16,635.50
Value recorded so far in the market account. 16,307.00
Add to in-stock asset 328.50
Accountingly, the adjustment to make the assignment would be:
If the increase is completed, the same result is reached as if the credit and debit notes after the purchase had been registered step by step. I reiterate, this is only a practical proposal as a means of approaching the everyday reality that a company has, and the transgression of theoretical concepts is overcome when reaching a similar result.
The daily reality of a company: more products to carry out the corresponding assignment. The previous example tried to demonstrate the operation of the movement account and the adjustment that is made at the end of a period, if you want monthly. But note that the more knowledge you have in a stabilized economy of the cost of each product, the further you are from generating a totally different result than if the allocation is made specifically.
If you do not want to adopt the easiest way to solve this problem, you should have statistical information about the cost value of each unit, and then use it when making the assignment. In the event of movements in some of the factors that form part of the cost, the allocation of the movement account should be made to balance the distribution in the costs already suffered. If the price change is repeated often, no system of calculating the cost incurred serves us any longer; it would be necessary to resort to the current replacement cost (point 3.1.7 of the FACPCE)
3.4.1 Traditional stream: (global inventory difference system
Among the fundamental principles that underpin the model (in relation to this topic), the cost principle must first be met to determine the cost of sale and then it is verified whether valuing the final existence of merchandise for said value allows the principle to be met. of prudence.
The cost principle determines that if it is not justified to use another valuation method, the true acquisition value must always and above all be chosen, in such a way that it reflects the real position assumed by the company.
Recall that this doctrinal current determines that the value of income to the patrimony of the exchange and use goods, will be equal to its purchase value, minus the commercial discounts (bonuses), plus the necessary expenses to put the goods on deposit, if it is an exchange good, or to put the good into operation, if it is a good of use. It is advisable to record cash discounts and (financial) interest separately.
For its part, the principle of prudence, remember that it establishes that, in case of having two asset values, you must choose the lesser of them. It also follows from this principle that losses are recorded when known, while gains only when realized.
Once the cost of sale is determined using the income to equity values for each element of the formula, it is verified whether the principle of prudence was complied with. In this regard, two cases may arise: that the final existence of merchandise at cost value is less in its amount than the market value or vice versa. If the second occurs, the value of the final existence must be adjusted, a topic that I will explain later.
The market value arises from a comparison between the replacement value as long as it is between the maximum limits established by the VNR (sale value minus the expenses necessary to carry it out) and a minimum limit value made up of the VNR minus the normal profit margin. (12).
For example, if a bicycle for resale has a replacement value of $ 90, sale value of $ 136, (there is no selling cost) and the normal profit margin is 40%, the amount to be taken as market value is $ 90, since it is below the maximum limit ($ 136) and not less than the minimum limit ($ 90).
To comply with the prudence principle, the market value will be taken first and then that value is compared with the cost value; the minor between them two will conform the value of the final existence of merchandise.
As can be seen in this first case, complying with the cost principle, the prudence principle is complied with, because the least of them is taken on two values of the same asset, that is, on the final existence of merchandise.
3.4.2 RT 10 of the FACPCE (cost of sale at equity income values and valuation of the final existence of merchandise in accordance with the provisions of RT 10 of the FACPCE)
3.4.2.1 Valuation for replacement cost. (input current value)
For those goods that require a certain effort for their commercialization (which are the majority of inventories), the current input value is taken, established in point 3.5 of RT 10 of the FACPCE, that is, replacement value of the existence final. In this regard, Annex I of the same standard establishes different alternatives that are listed by way of example to achieve said value:
Direct
1) - Price list or supplier quotes, corresponding to the usual quantities that the company buys. Naturally, applying this rule, the cost of repurchase must take into account commercial discounts and their cash value; both affect the acquisition cost. So when the annex talks about habitual quantities, it does so in order to take into account the preceding concepts stated in such a way that the present value of it is achieved.
For example, if the company regularly buys 100 bicycles, it should know, apart from the unit price, what the quantity bonus would be for that purchase, the cash value and the expenses necessary for that merchandise to be able to be sold.
- If the 100 bicycles have a unit price of $ 60 each + VAT
- If a 3% bonus is achieved for that amount.
- If the list value for the 100 units, has an implicit interest of $ 116.40.
- If the total freight charge is $ 100.
| Summary: 100 bikes $ 60 c / a = 6,000.00 |
| Qty Bonus 3% = 180.00 |
| Implied interest on the list value = 116.40 |
| Freight = 100.00 |
| Total ……………………… = 5,803.60 |
100 bicycles $ 5,803.60, that is, $ 58.04 is the unit replacement value of the bicycle at the end of the fiscal year.
2) - Prices of effective purchases of the last month. This as long as we are not in a significant inflationary process, producing a significant change in the relative price of goods.
3) - Agreed prices on purchase orders, pending receipt.
4) - Publications of prices, in magazines, bulletins and other publications.
5) - Other forms of contribution.
Approximations
1) - Restatement of prices of effective purchases based on specific indices of the item in question.
2) - Budget for expenses and production costs.
3) - Others
Valuation for Restated Cost
The last part of point 3.5 of RT 10 of the FACPCE, accepts in case of impossibility of determining or estimating the replacement value of the final existence, that the original cost restated in constant currency be used.
Synthesis of point 3.5 of RT 10:
The final existence of merchandise must be valued, of those inventories that are not expendable, that do not have a transparent market and that need a determined effort for their commercialization, at their replacement value according to one of the direct methods or those that they achieve an approximation.
If the replacement value of the asset cannot be achieved, the cost restated in constant currency can be used. Today, the adjustment for inflation has been discontinued, as instructed by Decree No. 316/95 of the National Executive Power, as of September 1, 1995.However, RT 10 of the FACPCE maintains said mechanism in force in order to achieve in the financial statements a homogeneous unit of measurement (point 2.2 RT 10). I recall that the guideline guideline emanating from Res. 140/96 (FACPCE) does not invalidate, from a technical point of view, the argument to maintain the restatement, even when the correction coefficients are low. Although the significance of the variation produced between expressing the states in constant or historical currency comes into play,This is not the only cause and effect that should be considered. It depends on other factors endogenous to the entity, such as the structure and composition of the asset over time, the amount of the exposed capital, etc.
On the other hand, and based on the principle of significance, if the amounts of the adjustment to be made are significant, the financial statements should be expressed in constant currency, even if a dichotomy arises with the provisions of Decree 316/95 (13).
3.4.2.2. Output current value
For those goods that have a transparent market, are fungible and for their commercialization, no significant effort is required, they must be used as current value (it is the pure current value) at the closing sale price (if representative) and You must subtract the expenses that the company would incur if it carried out that operation.
3.4.3. Cost of sale at current value
First of all, the RT 10 of the FAPCE in its operative part states that the calculation of the cost at current values set forth in point B.3.17 is mandatory, only for the entities included in article 299 of law 19,550 (and modification) already from the third year of application of this standard. In the remaining cases, it will be admitted that the costs of sale are the historical costs restated in the conditions indicated in RT 6 of the FACPCE
Retaking: ……..
About the application of current values, in replacement of the traditional principles of cost and prudence in the valuation of the existence of merchandise, there is a lot of bibliography. The subject was sufficiently treated, in the previous point and can be summarized as follows.
- INITIAL + PURCHASES - EX. FINAL = COST OF SALES
Then, each of the items is restated at closing values, leaving the final existence at a restated cost value (if the values are taken in constant currency), and if the final existence does not coincide in its amount with the value of market, there will be a positive or negative holding result.
However, the cost of goods sold is still represented by the restated cost -or- in its historical case and not by the current cost (already discussed in the previous point), that is to say that with this procedure only the existence is valued at current value end and not cost.
In this regard, RT 10 of the FACPCE states in its section 3.1.7 in relation to the items of the income statement originated in exchange operations that “ the income will be determined at the cash value of the month of completion of the operations that generated them "
Costs will be computed at their current spot value for the month in which they are recognized. The end pursued is the determination of an outcome, which is the difference between an income from
of a sale and a cost representative of the current value of the good sold. The values thus computed in each month will be restated in constant currency to integrate them with those of the remaining months that make up the accounting period.
In the first place, it is necessary to impute the replacement cost of the sale instantaneously at the time of making the transaction and to have a minimum monthly information on inventories. If the company carries out a permanent inventory system of these, it will be possible to comply with the standard, although the expense generated in the administrative and cost sector (even in the commercial company) will be high.
Firstly, the procedure carried out to value the cost and the existence of inventories at current value will be developed, through permanent inventory, and then an approximation will be attempted in the globally calculated one.
Cost center in commercial companies: their role in the company will begin by giving the correct income value to inventories, then value the cost and the final existence at current value, and finally determine the values that will be exposed in the financial statements. Recall that a new task is added at the end of the year, and that is to charge the internal costs of the purchasing and quality control sectors to inventories.
3.4.3.3 Cost at current value: company that calculates the cost for inventory difference.
When the company calculates the cost once a year using the global difference, it loses the possibility of achieving better and greater control over the movements of its merchandise. However, it does so because it cannot cover the administration costs that would be incurred by a permanent inventory system.
The possibility that this company can achieve, in a single calculation per year, to determine a current cost is null since the same technical resolution favors a cost valuation at the time of the transaction and not annually. I have tried this formula which would seem to be the most logical
I verify that, both the preceding formula and in some cases the historical cost, restated with a general price level index, are close to achieving the current cost of sales made, insofar as there are no significant price fluctuations. It is natural that this should happen, since even in restated historical accounting, the cost calculation differs by applying, for example, the PEPS allocation method, on the inventory sheet, than the one calculated by inventory difference.
I conclude on this matter that the company that does not have a permanent inventory system will resign itself to not being able to determine the current cost of its sales; Failing that, it may choose to determine the restated cost, as indicated in the operative part (unless it is one of the companies included in article 299 of Law 19,550) of RT 10 of the FACPCE.
3.5. Exposure of the cost of sale and final existence of merchandise at the end of the year - allocation for internal charges in the purchasing and quality control sector .
With what has been developed up to now, it is not enough if you want to comply with all the technical consequences that derive from RT 10 of the FACPCE. There is one last step that is implicit in the resolution in point 2.4, and it says: “the value of the good, the portion of the cost of external services (developed at the beginning) and internal services that allow the good to be sold. "
When the internal services suffered are explicitly mentioned in order to enable the good to be sold, one possibility of achieving it in practice without ruling out other ways of doing it, is for example through the estimated allocation of internal and external services at the value of replacement.
Once the costs incurred in the purchasing sector have been assigned, at the time of having to show the information, the instrument of this exposition is the annex of expenses of article 64 and the cost of sale.
3.6 VAT and inventories
The value added tax is applied to most of the company's purchases of goods and services. This does not constitute a cost charge if it is a registered person in charge (the buyer), although it would be, if the buyer is a person not registered in the tax, a taxpayer of the simplified regime or an exempt.
I think that the accounting record does not present major difficulties, although I have a perhaps particular idea in this regard. If VAT originating from purchases is considered as an asset account and sales VAT as a liability, we find that at the end of the month we have rights and obligations that can be offset against each other. It is known that the tax credit is recovered against the tax debit and only with it. While the VAT in favor of the company originated by special regimes of direct income (withholdings and perceptions made by third parties to the company) would be offset against the tax debit (if it was not fully used to recover the tax credit), in its defect would be recovered against the accrued VAT received from the responsible parties not registered. If it is not recovered in the manner detailed above,it will become part of what is called a balance in favor of article 20 paragraph II (of the VAT law) for the next year or it may be used to pay off a national tax debt other than this tax.
The truth is that technically it is difficult for me to understand that the company has an asset in VAT when buying merchandise or contracting a taxed service, since perhaps at that time it has invoiced VAT to its customers when selling them. At the time of purchase, the VAT tax credit could be interpreted to constitute a total increase in assets, a decrease in liabilities or both at the same time. On the other hand, it is not clear from the VAT law or its regulatory decree that the tax credit represents a right for the entrepreneur; if instead the balance in favor that arises from the monthly position where there is a tax credit greater than a debit. Article 20 paragraph I of the VAT law states how to recover that balance.
One solution to the problem is to use regulatory accounts, as stated by some authors. In particular, I propose to use movement accounts during the month and then, at the end of the month, when making the monthly VAT position, generate an asset or liability balance depending on whether it is an amount in favor of the taxpayer or the DGI
Thus, at the end of the month, we could find the following accounts referring to the accounting treatment of VAT
The previous movements represent the balance reconciled between the books VAT sales and purchases with the accounting, at the end of the month. As of this date, this tax information is no longer unilateral, since it is externalized through the sworn statement presented to the DGI
As can be seen, the company's tax law, since the tax credit is higher than the debit, originated at the end of the month; not at the time of a purchase. On the other hand, the obligation to pay the $ 4,800 also arises at the end of the month. Only at this moment the certain and determined liabilities towards the DGI are perfected.
Summarizing:
- When making a purchase taxed by VAT, there is no definitively perfected right, taking into account the form of its recovery. When selling I cannot affirm that the debit represents a true enforceable liability. Only the taxpayer's right or obligation arises at the time of confronting the different VAT. the asset or the liability is perfected from that moment; previously there is a unilateral situation, not agreed by the DGI, which avoids defining whether it is a fully perfected right or obligation.
The final balances, coinciding with the VAT affidavit, are those that constitute a true right or obligation. It is only at this time that a defined equity position is taken.
Download the original file
