# Valuation of Material Purchased
To compute the cost of material that will be charged to production, we start from the supplier's purchase price and adjust for discounts, taxes, other expenditure and abnormal items.
## The Standard Format
| Particulars | Amount (₹) |
|---|---|
| Purchase price of the material | xxx |
| Less: Discounts | |
| Trade discount | (xx) |
| Quantity discount | (xx) |
| Grant / subsidy from anyone | (xx) |
| Cash discount (or any finance charge — excluded) | (xx) |
| Add: Taxes | |
| Road Tax / Toll Tax paid by buyer | xx |
| GST on input if ITC not allowed | xx |
| Customs / Import Duty | xx |
| Penalties (Demurrage / Detention / Fine) | NOT included (abnormal cost) |
| Add: Other Expenditure | |
| Insurance / commission | xx |
| Freight inwards | xx |
| Cost of container (see container topic) | xx |
| Less: Abnormal loss | (xx) |
| COST OF MATERIAL | xxx |
## Key Principles
### 1. Discounts → Deduct
All trade discounts, quantity discounts and subsidies/grants are deducted because they reduce the actual outflow. Cash discount is a finance item, and any finance/interest cost is also excluded from material cost.
### 2. Taxes → Include only if not recoverable
- Toll tax, road tax paid by buyer → Add (non-recoverable)
- GST input — Add only if Input Tax Credit (ITC) is NOT available. If ITC is available, GST does not form part of cost
- Customs / Import Duty → Add
### 3. Penalties → Ignore Completely
Demurrage, detention, fines are abnormal costs — they neither increase nor decrease material cost. Don't add them, don't deduct them — exclude entirely from costing and route to Costing P&L.
### 4. Other Direct Expenses → Add
Freight inwards, insurance in transit, commission to buying agent, refundable portion of container cost — all are added because they are necessary to bring material to its present location and condition.
### 5. Abnormal Loss → Subtract
Abnormal loss (theft, fire, flood) is removed from material cost and charged to Costing P&L separately.
## Freight Apportionment for Two Materials
If a problem gives two or more types of material with a common freight, apportion freight on the basis of weight of materials.