CMA Final · Cost and Management Audit · Overview of Cost Accounting Standards and GACAP
Under CAS 6 (Material Cost), how should cash discounts received on purchase of materials be treated when determining the cost of materials?
Under CAS 6, cash or early settlement discounts are not reduced from the cost of materials, because they relate to financing the payment rather than to the purchase price. Only trade discounts, rebates and similar price reductions reduce the material cost.
- ACash discount is deducted from the cost of materials
- BCash discount is added to the cost of materials
- CCash discount is ignored for material costCorrect
- DCash discount is treated as other income
Explanation
CAS 6 states that the cost of materials excludes cash or early settlement discounts, which are financial in nature. Trade discounts and rebates are deducted. Deducting cash discount from material cost therefore contradicts the standard.
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