What is Accounting for package or container?

Accounting for package or container

Concept

Nowadays, all most all materials and commodities are sold in packet containers e.g., in bottles, cartons, boxes bags, cans, case cylinders, drums, etc. these containers and packages may be necessary for preservation of goods and commodities or for processing, transportation and marketing purpose. These packing aids may be called packages or containers. Usually, the packages or containers are made of cotton, jute, paper, paper board, glass, plastic, plywood, aluminum, tin, steel, etc. the seller of goods either purchases his packing materials form the market or may produce/prepare them in his own factories. The seller directly or indirectly charges the cost price thereof from the buyer of the goods. There are two method of charging the price of packages from the costumers. Accounting to first method the price of packages in not charges from the customer separately, but the seller considers cost of empty containers and packages as a part of production cost of goods and includes the cost of the packages while fixing the selling price of the commodity. According to the second method the price of packages is charges separately from the buyers in addition to the price of goods/ commodity sold.

If the packing-aids are durable in nature are can be refused then to the seller of goods/commodity may considered to declare to policy from return of empty packages from his customers thus, empty container or packages may be classified in to returnable and no-returnable from the customers. The possibility of return by customers depends upon the terms of agreement. Thus. There may be two satiation regarding the return of packages by the buyer (i) the packages are not returned to the seller of commodity by the buyer and (ii) the packages are returnable to the seller by the buyer.

From the point of view of accounting in the book of the seller of goods in packages, there may be following fur situations in respect of packages:

• The price of packages is not separately charged and packages are no-returnable.
• The price of packages is not separately charged but packages are returnable;
• The price of packages is separately charged hut without the facility. Condition for return of packages and
• The price of packages is separately charged with the facility/condition for the return of the packages.

Objective of accounting for containers

Investment is made on containers. Therefore, a separate accounting is needed for it. But in real practice, it is not needed to prepare a separate account for non returnable containers. Accounts are maintained only for returnable containers. Generally, the following are the main objective of accounting for containers.

• To determine profit or loss from container.
• To determine the amount of investment on containers.
• To control the movement of containers.
• To determine the value of opening and closing stock of containers.

Importance terms of container

There are sum terms of containers which are frequently used in accounting for containers.

a.      Containers sent out: when containers used in a product is sent to the customers while selling the product, then such container is called 'container sent out'.

b.      Containers returned: after using the product, when a customer's returns empty container to the seller then such empty container is called 'contained returned'. Here, such container should be returned within the given due time.

c.       Returnable container: containers with customers at the end of the accounting period are called 'returnable containers'. Such containers are also known as closing stock with customers.

d.      Container returned by customers; containers not returned within the time or containers retained by the customers are called 'container retained by customers'. Such retained containers are treated as sold containers.

e.      Cost price: purchasing or manufacturing cost of the containers is known as 'cost price' of the container

f.        Charge out price: it is also known as invoice or sent out price of the container. When the seller receivers the price of the containers while selling goods then such price of containers is called 'charge out price'.

g.      Returnable price: when a seller refunds sum amount after returning container by a customer within during due time then such refund amount is called 'returnable price'. Generally, the value of returnable price is the less than charge out price.

h.      Hire charge: the difference value of charge out price and returnable price is called 'hire charge'. Actually, a seller receives only hire charge from returned containers.

Hire charge = charge out price – Returnable price

Calculation of Missing Terms of Container

a.      Non-returnable containers:

1.      Closing stock units = opening stock units + purchases units – consumed or sent out units

2.      Opening stock units = consumed or sent out units + closing stock units – purchase units

3.      Purchase unit = consumed or sent out units + closing stock units – opening stock units

4.      Consumed or sent out units = opening stock units + purchase units – closing stock units

b.      Returnable containers:

1.      Closing stock units in hand = opening stock units in hand + purchase units + Returned units by customers – sent out units – scrapped or condemned units – destroyed units
2.      Opening stock units in hand = sent out units + scrapped  or condemned units + destroyed units + closing stock units in hand – purchase units – returned units by customers
3.      Purchase units = sent out units + scrapped or condemned  units + destroyed units + closing stock units in had – opening stock unit in hand – returned units by customers.
4.      Returned units by customers = sent out units + scrapped or condemned units + destroyed units + closing stock units in hand – opening stock units in hand – purchase units
5.      Closing stock units with customers = opening stock units with customers +sent out units – Returned units by customers – Retrained units by customers
6.      Opening stock units with customers = returned units by customers + Retained units by customers + closing stock units with customers – sent out units
7.      Sent out units = returned units by customers + retained units by customers + closing stock units with customers – opening stock units with  customers
8.      Returned units by customers = opening stock units with customers + sent out units – retained units by customers – closing stock with customers
9.      Retried units by customers = opening stock units with customers + sent out units – retained units by customers –closing stock units with customers.

1.      Hire charge per unit = charge out price per unit – returnable price per unit

2.      Charge out per unit = returnable price per unit + Hire charge per unit

3.      Returnable price per unit = charge out per unit – hire charge per unit

4.      Total hire charge = sent out units x hire charge per unit

Note: in this chapter, Drum, Crate, Bottle, Box, Jar, Bag, etc. words are used instead of package or container.

Accounting for Types of Container

As there are various types of containers, their accounts are also kept using different methods.

1. Non-returnable containers:

A separate charge is not made

A separate charge is made

1. Returnable containers:

A separate charge is not made

A separate charge is made

1.      Non-returnable containers

After purchasing a product, when package or container used in the product is not returned to the seller, then such package or container is called non-returnable container. Examples of non-returnable containers are wrapping and package materials of soap, tooth-paste, medicine bottles, etc. such, non-returnable containers can be classified into two parts:

a.      A separate charge is notmade: under this, the price of packages is not charged separately in this saes voucher of goods sold to the customers, rather it is considered while fixing the selling price of the goods. The packages are also neither required nor permitted to return to the seller by the customers. Since, the price of package is ot separately charged from the by=user separately, the profit or loss on packages cannot be ascertained. Under this method only 'packages stock account is prepared. This account is debited with the value of opening stock of package and with the cost price of packages purchase during the period. It is credited with the value of closing stock of packages. The difference between the two sides of this account represents the consumption of packages during the accounting period. This amount i.e. cost of consumer packages is transferred to trading and profit and loss account.

a.      Separate charge is made: under this arrangement, the price of package is not included in this sale price of the goods, but is charge separately in the sales voucher issued by seller of goods to its customers. Under this situation, packages sent to customers are treated as final sale of packages because the customers are not required to return the packages to the suppliers. In this situation, a separate 'Contains Account' is prepared to record such packages or containers. This account shows opening stock of packages or containers and purchases of packages or containers on its debit side. Similarly, its credit side shows amount receivable from containers and closing stock of packages or containers account should be transferred to profit and loss account. Generally, the following format is used to prepare a containers account:

A separate charge is made:  under this arrangement, the price of packages is separately charged is sold goods to customers. Under this method three method of accounting can be used for packages of containers:

a.      With maintaining stock training and reserve account

b.      With maintaining stock and reserve account

c.       With maintaining trading and reserve account

With Maintaining stock trading and reserve account method: under this method, the following three accounts are prepared:

-          Containers stock account

-          Containers Trading account

-          Containers Reserve Account

Containers stock Account: this account shows units, rate and amount of containers. All records are maintained on the basis of cost price or minimum value of given stock. Its debit side shows opening stock I hand and with customers as well as purchase of containers. Its credit side shows cost of containers retained by customers, depreciation of containers, and cost of containers scrapped cost of destroyed or lost containers as well as closing stock of containers in hand and with customers.

Containers trading account: containers trading account to depict profit or loss from returnable containers. This account begins with containers stock account (cost of containers retained by customers) on debit side. Similarly depreciation of containers, cost of containers scrapped and repair and maintenance of containers are shown on it debit side. Its credit side shows hire charge on containers, retaining f returnable price of containers, scrap sold, etc. the balancing figure of this account either on debit or on credit is called profit or loss and should be transferred to profit and loss account.

Containers Reserve Account: the credit side of this account shows opening stock of containers with customers and containers sent to customers. It shows retaining of side also shows returnable price of containers returned by costumers and returnable price of closing stock with customers. This account is also known as:

-          Containers  deposited account

-          Container provision Account

-          Container Suspense Account

With maintaining stock and Reserve Account: under this method, a separate containers Trading account is not prepared. The items of container Trading Account are included in container stock account. Generally the following two accounts are prepared under this method:

-          Containers stock account

-          Containers Reserve Account

Containers stock Account: this account shows opening stock of containers in hand and with customers, purchase of containers and repairs of containers on its debit side. Its credit side show hire charges on containers, scrap sold loss of containers, returnable price of containers retained by customers and closing stock of container in hand and with customers. The balance figure of this account on debit or on credit side is called profit or loss and such profit or loss should be transferred to profit and loss account.

With maintaining stock and Reserve Account: under this method, a separate containers Trading account is not prepared. The items of container Trading Account are included in container stock account. Generally the following two accounts are prepared under this method:

-          Containers stock account

-          Containers Reserve Account

Containers stock Account: this account shows opening stock of containers in hand and with customers, purchase of containers and repairs of containers on its debit side. Its credit side show hire charges on containers, scrap sold loss of containers, returnable price of containers retained by customers and closing stock of container in hand and with customers. The balance figure of this account on debit or on credit side is called profit or loss and such profit or loss should be transferred to profit and loss account.

Containers Reserve Account: this account begins with returnable price of opening stock with customers on its credit side. It also shows returnable price of containers sent out on its credit side. Its debit side shows returnable price of containers retained by customers, returnable price of containers returned by customers and returnable price of closing stock with customers. 

With Maintaining Trading and Reserve Account: the following accounts are prepared under this method:

-          Containers Trading Account

-          Containers Reserve Account

Containers Trading Account: under this method, a separate container stock account is not prepared. Containers Trading Account included all the items of containers stock account.

Containers Reserve Account: This account is prepared using the same principles already discuses in fist method.

Annual Depreciation and Life Period Being Over

Containers are durable assets therefore, depreciation should be charged on them. There are so many methods of charging depreciation. But here, straight line method of depreciation is used.

Opening and closing stocks of containers are shown on cost price in container stock Account or containers Trading Account. But depreciation in containers is shown on debit side of these accounts. Generally, amount of deprecation is determined as under:

Total annual Depreciation

=(closing stock in hand + Closing stock with customers) x Annual depreciation per container

Accumulated depreciation of obsolete containers is shown on the credit side of containers stock account or containers Trading Account. The amount of accumulated depreciation of obsolete containers is calculated as under:

Accumulated depreciation on scrapped, used life being over

= No. of containers scrapped, useful life being over x Annual depreciation per containers x Life in years

Review of Theoretical Concept

Write the accounting treatment of Non-returnable container.

After purchasing a product, when package or container used in the product is not returned to the seller, then such package or container is called non-returnable containers. Examples of non-returnable containers are wrapping and packing materials of soap, tooth-paste, medicine bottles, etc. such, non-returnable containers can be classified into two parts:

A separate charge is not made: under this, the price of packages is not charged separately in this saes voucher of goods sold to the customers, rather it is considered while fixing the selling price of the goods. The packages are also neither required nor permitted to return to the seller by the customers. Since, the price of package is ot separately charged from the by=user separately, the profit or loss on packages cannot be ascertained. Under this method only 'packages stock account is prepared. This account is debited with the value of opening stock of package and with the cost price of packages purchase during the period. It is credited with the value of closing stock of packages. The difference between the two sides of this account represents the consumption of packages during the accounting period. This amount i.e. cost of consumer packages is transferred to trading and profit and loss account.

Separate charge is made: under this arrangement, the price of package is not included in this sale price of the goods, but is charge separately in the sales voucher issued by seller of goods to its customers. Under this situation, packages sent to customers are treated as final sale of packages because the customers are not required to return the packages to the suppliers. In this situation, a separate 'Contains Account' is prepared to record such packages or containers. This account shows opening stock of packages or containers and purchases of packages or containers on its debit side. Similarly, its credit side shows amount receivable from containers and closing stock of packages or containers account should be transferred to profit and loss account. Generally, the following format is used to prepare a containers account:

Discus the nature of the containers stock account, container trading account and container reserve account.

Containers stock Account: this account shows units, rate and amount of containers. All records are maintained on the basis of cost price or minimum value of given stock. Its debit side shows opening stock I hand and with customers as well as purchase of containers. Its credit side shows cost of containers retained by customers, depreciation of containers, and cost of containers scrapped cost of destroyed or lost containers as well as closing stock of containers in hand and with customers.

Containers trading account: containers trading account to depict profit or loss from returnable containers. This account begins with containers stock account (cost of containers retained by customers) on debit side. Similarly depreciation of containers, cost of containers scrapped and repair and maintenance of containers are shown on it debit side. Its credit side shows hire charge on containers, retaining f returnable price of containers, scrap sold, etc. the balancing figure of this account either on debit or on credit is called profit or loss and should be transferred to profit and loss account.

Containers Reserve Account: the credit side of this account shows opening stock of containers with customers and containers sent to customers. It shows retaining of side also shows returnable price of containers returned by costumers and returnable price of closing stock with customers.