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Former Member

Inclusion of VAT credit reversal in Material cost

Hello Experts,

I have one complex requirement with respect to Stock transfers.

Out of total sales say 50%(approx - deviations are mostly by 1% or 2%) of Sales is through Stock transfers to branches existing in other states. Due to this VAT input credit taken on goods procured inside the state has to be reversed. Exact percentage is calculated at the end of every three months and the adjustment entry is posted in the system affecting the VAT input credit A/c and a P&L account.

The requirement is to include 50% of VAT as part of Material cost. This should not affect your VAT input a/c and it should be charged at the time of Goods receipt. Following example will give a better understanding

Material price = Rs. 100/-

VAT applicable = 5%, so VAT input available(initially) is Rs.5/-

Proposed entry at the time of GR

Stock A/c Dr. Rs.102.5

To GR/IR A/c 100

To VAT adjustment A/c 2.5

Proposed entry at the time of IR

GR/IR A/c Dr. Rs.100

VAT input Dr. Rs. 5

To Vendor 105

Wherein in the normal scenario Stock a/c will have an effect of Rs.100 only, in this case it will be 102.5

At the end of a quarter, actual percentage of Stock transfer will be calculated and a manual posting will be made to adjust the VAT adjustment a/c and VAT input a/c along with differences if any to P&L A/c.

Purpose

The purpose of this requirements is to include the VAT reversal part in the Product cost of finished goods. Otherwise, VAT credit reversal completely goes as part of P&L whereby the actual cost of Product is impacted. Since, the percentage to be reversed is consistent with minor fluctuations they are doing this calculations manually while calculating the Product cost. Now, they need this in System itself, so that Material cost is real and also VAT input account is not affected.

We tried to include this posting at the time of Invoice verification, but it was clearly rejected. This adjustment should happen at the time of GR itself.

Kindly suggest on this requirement.

Thanks & regards,

Muneer Ahamed

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  • Best Answer
    author's profile photo Former Member
    Former Member
    Posted on Jan 06, 2014 at 11:04 AM

    Hi Muneer

    You will need to amend your pricing strategy where, you vat input condition type should not be assigned to any account key (meaning no accounts posting). Two addtional Condition types can be created and assign in pricing schema below VAT condition type setting a condition record of 50% (with refrerence to VAT condition type) in your case.

    The first condition type should have Accruals set in its config (meaning costs would be posted to inventory costs)

    The second condition type should not have accruals set.

    Doing this, you would be able to get 5 during MIRO. For this Account keys should be maintained to get the final result to respective GLs

    Hope it helps

    Regards

    Mustafa

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    • Former Member Former Member


      Hi Muneer

      Under Condition type defination, make sure that Condition category is B (Delivery Costs) and Accruals indicator is checked under section / tab Control Data 2.

      Please note, these settings would work only for new PO

      Hope it helps

      Regards

      Mustafa Sakerwala

  • Posted on Jan 06, 2014 at 10:32 AM

    Hi Muneer

    Are you in trading business or mfg business?

    Second, I somehow feel that the requirement is not a correct one.. You need to reverse the VAT Input credit in Sender State, but then you would be taking the VAT input credit in the Receiver state.. Its not that you will be foregoing the VAT input credit totally.. Will you?

    As long as you take the VAT credit there, and enjoying the VAT credit, I dont think you should be inventorizing it.

    Br, Ajay M

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    • Former Member

      Hello Ajay,

      It is a manufacturing business.

      No, There is no question of VAT input in the receiving branch. It just receives the stock through stock transfer from manufacturing plant in other state and sells it within the state. Maybe in the proposed GST this credit could be available.

      In the sending state, initially VAT input credit will be taken and later after three months credit will be reversed to the extent of Stock transfer to other states.

      Thanks,

      Muneer Ahamed

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