HiDear Ruth Hutching, you have asked two questions relating to cost of goods sold. First of we should know what is cost of goods sold. Cost of goods sold means total cost of consumed goods for the purpose of sale. Now, I am trying to solve your problem
If a wholesaler replaces poor product, do you see that cost as a cost of sale or should it go in the income and expenditure account as an extraordinary cost? Costs for giveaway products i.e. buy one get one free should the cost of the free product be shown as a cost of sale?
Appreciate if you can help me.
Ruth Hutching from New Zealand
1. Of course, when a wholesaler will replace any poor product, if he takes more money for providing standard quality goods, we will add it as extraordinary cost and it will increase cost of goods sold. If wholesaler will not take any extra money, there is no need to show extra cost in income and expenditure account.
2. No there is no cost of product which we have received freely. But if when we sell that product, it will include our sale amount. Surely, it will be helpful to increase our gross profit, if we get such deal.