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Chapter 5

Q. 5.1

Initial recognition of inventories—acquisition cost. Stylish Shoes S.R.L. is a local shoes retailer. In October 20X8, the company purchases 5000 pairs of shoes from its Italian supplier LeScarpe at a purchase price of 25 euro/pair. Also, the supplier offers a 2% trade discount. The NBR exchange rate at the acquisition date is 4.6 lei/euro. For the delivery of the goods, Stylish Shoes S.R.L. uses a local supplier, Curier Rapid S.R.L., which issues an invoice in amount of 5000 lei, VAT 19%. Determine the acquisition cost of the shoes and present the corresponding accounting treatment.

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Stylish Shoes S.R.L. will initially recognise the shoes as goods for resale (merchandise) valuated at their acquisition cost.
Therefore, the acquisition cost of the shoes is to be determined as follows, in accordance to IAS 2 Inventories as well as with the Romanian accounting regulations:

Acquisition cost = Purchase price − Trade discounts + Delivery expenses + all other direct costs needed to use the inventory

= (5000 pairs × 25 EUR/pair − 2% × 125, 000 EUR) × 4.6 lei/euro + 5000 lei
= 122, 500 euro × 4.6 lei/euro + 5000 lei = 568, 500 lei

The total acquisition cost of inventories in amount of 568,500 lei is split into:

  •  the equivalent of 563,500 lei due to the supplier LeScarpe and
  • 5000 lei (plus the 950 lei VAT) due to the currier Curier Rapid S.R.L.

The company will then journalise the acquisition as follows:

  • The invoice received from LeScarpe (the VAT implications related to this transaction will not be taken into consideration, as they are the subject to different fiscal regulations; further explanations shall be provided):

563,500  lei       Merchandise   =    Accounts payable/LeScarpe              563,500 lei


 

  •  The invoice received from Curier Rapid S.R.L.:

5950 lei                  %                     =     Accounts payable/Curier Rapid S.R.L.       5950 lei

5000 lei         Merchandise                                                                                            5000 lei

950 lei            VAT deductible                                                                                        950 lei


Note 1. The VAT amount from the delivery invoice is not included in the acquisition cost of merchandise, as this is an indirect tax which is deducted by Stylish Shoes S.R.L. and will be later recovered by the company from the local fiscal authorities
Note 2. The amount of the goods for resale recognised by the company, is of 563,500 Lei + 5000 Lei = 568,500 Lei, which represents the acquisition cost previously determined