How to pass the entries in books of accounts when selling price of the goods is less than the purchase price?

One of our clients, M/s Cement Enterprises, Bangalore, traders in Cement, has raised this query. They are buying cement at the rate of Rs.400/- per bag. They sell them for Rs.350/-.The loss in the sale, i.e., Rs.50 per bag is made good (reimbursed) by the manufacturer as ‘bulk discount’.

Now the query is about Value Added Tax (VAT). While buying, they would have paid VAT on Rs.400 and while selling they would have collected VAT on Rs.350. So, in the books of accounts, their input VAT credit will always be more than their output VAT. They want to know how to account this type of transaction.

  • VAT on purchases – The VAT paid on purchases is to be accounted as input VAT and shown in accounts side of the Balance Sheet
  • VAT on Sales – The VAT collected on Sales is to be adjusted against input VAT
  • The excess Input VAT – The excess input VAT has to be written off to the Profit and Loss Account.
  • Discount received from the manufacturer – The discount received from the manufacturer has to be credited to Profit and Loss account and debit manufacturer’s account (creditor’s account)


The Karnataka Value Added Tax (Amendment) Act, 2015 (Amendment to Section 11) reads as under

“Notwithstanding anything contained in this Act, where any dealer has sold goods at a price less than the price of such goods purchased by him, the amount of input tax credit shall be restricted to the amount of output tax of such goods


Thought for the day

There is no greater wealth in this world than peace of mind.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at

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