How to Recognize Import Duty as Part of Cost of Goods Sold?

Owned by Priyasri Subramaniam (Unlicensed)
Last updated: 2017-Mar-15 by Janet Tan
2 min read

Handling of Import Duty can be broken down into a few steps :

Step 1 : record Import Duty payable ( compulsory )

 - this can be done by SINV
 - Dr Import Duty ( expenses )
 - Cr accPayable ( current liability )

Step 2 : record payment for Import Duty ( compulsory )

 - this will be done by PV
 - Dr accPayable ( current liability )
 - Cr bank ( current asset )

 Step 3 : increase MA based on Import Duty (optional)

 - this will be done by Reset MA ( either manually or by specifying Import Duty during GRN)
 - Dr inventory ( current asset )
 - Cr Import Duty ( expenses )
 - it is to allow for Import Duty to be realized only upon Sales as part of Inventory Cost, rather than 1 lump sum as expenses

So, as you can see from the steps above, if user were to do Step 1, 2 and 3, but later perform PR ( which will revert the Reset MA done in Step 3 ), Import Duty should still be recorded correctly (as expenses).

What if my Import Duty GL is categorized as Current Liability and not Expenses / COGS ?

Well, not a problem. 

Step 1 : record Import Duty payable ( compulsory )

 - this can be done by SINV
 - Dr Import Duty ( current liability )
 - Cr accPayable ( current liability )

Step 2 : record payment for Import Duty ( compulsory )

 - this will be done by PV
 - Dr accPayable ( current liability )
 - Cr bank ( current asset )

Step 3 : Compulsory

Option 1 : increase MA based on Import Duty

 - this will be done by Reset MA ( either manually or by specifying Import Duty during GRN)
 - Dr inventory ( current asset )
 - Cr Import Duty ( current liability )
 - it is to allow for Import Duty to be realized as COGS only upon Sales as part of Inventory Cost, rather than 1 lump sum as expenses

Option 2 : manual Journal to transfer Import Duty from Current Liability to Expenses / COGS

 - Dr inventoryCost / expense / other expense or COGS GL ( expenses / COGS )
 - Cr Import Duty ( current liability )
 - this can be done as 1 lump sum at the end of every month


Various scenarios on how MA is affected by GRN and PR

Case 1 : 

1. Create GRN with Item XYZ.
2. PR with Item XYZ.
3. After PR , the Item XYZ MA return to original MA cost before GRN

Case 2 :
1. Create GRN with Item ABC and Item XYZ.
2. Partial PR for item ABC.
3. After partial PR for Item ABC , the MA for Item ABC return to original MA cost before GRN.

Case 3:
1. Create GRN with Item ABC with import duty amount added ( search item>>item details>> optional details >> import duty)
2. PR for Item ABC.
3. After PR for Item ABC MA return to original MA cost before GRN.

Case 4:
1. Create GRN with Item ABC and Item XYZ with import duty amount added ( search item>>item details>> optional details >> import duty)
2.Partial PR for Item ABC
3. After partial PR for Item ABC, the MA for Item ABC return to original MA cost before GRN.

Reset MA by GRN:
1. Create GRN for item ABC.
2. Do reset MA for item ABC by GRN
(Inventory>>reset ma>> reset MA by GRN)


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