how should be treatment for Demurrage and Detention charges as per IAS2

Question

should be considered for Costing or treated as expense

Answer 1

I guess you mean the demurrage and detention charges in relation to container transport / clearing in the import/export of some goods/raw materials. Generally these charges are common in container transport / freight and it is advisable to associate such expenses with the respective operation. For instance, if the demurrage/detention charges were incurred on the import of some raw materials, such charges could be included in the production cost / cost of sales.  On the other hand if such expenses were incurred in carrying out some administrative transport then it should not be included in the cost of sales; for instance you might have used a prime mover with a container in shifting your office to some other place. In such case you should take these charges into administration expenses.

Comments

Hi Tina,

i agree on your comment , i believe as per general rule we have to charge to the expense where on a specific business nature it may be considered for product costing.
anyhow it's a behaviors of board and top management and IAS2 has not emphasized to practice 1 way and its a judgmental decision though it can be argued for and against treatment.