Custom Groups are used to hold information when using a Landed Cost in the Purchasing section. They are set up in the Administration -> Setup -> Stock Management -> Customs Groups. In this window, the expected custom duty percentages, allocation and expense accounts are defined.

The Customs Allocation Account is often setup as a Balance Sheet (Liability) account to temporarily hold the accrued landed cost postings. When you receive the actual invoice from your vendor, say freight forwarder, this account should be offset on that AP Invoice entry.

The Custom Expense Account is typically defined as a Profit/Loss account. This is the posting account used for custom duties that the company decides not to capitalise (add to the stock cost) and hence charge them to full expense as they occur.

We’ll now review the transactions
1. Define a ‘Custom Group’ for the Item. For Item A2000 for example, the ‘Custom Duty’ is set. For this item, a projected custom duty of 10% of the item cost is set.

2. Post a Goods Receipt PO (No. 158) for 10 units of the item at GBP 10.00 each. This will now bring the item’s moving average price (MAP) to GBP 10.00.

3. Create a Landed Cost transaction for Goods Receipt PO No. 158. Notice that the ‘Proj. Duty’ and ‘Customs Value’ fields are automatically filled in.

The system computes these as follow:

Projected Duty
= Custom Groups % x Base Item Cost
= 10% x GBP 10.00
= GBP 1.00

Customs Value
= Projected Duty x Base Quantity
= GBP 1.00 x 10 Units
= GBP 10.00
4. The function has the option ‘Duty Affects Stock’.   When this is selected, the landed cost values will increase the average cost of the item.  We recommend this as it is a more realistic cost of the item and will give you a better view of item level profitibility.

5. Record the Landed Cost transaction. The journal entry transaction will have an increase in the Raw Materials (Stock) account because the underlying items will have an increase in value.

This will also have an impact on the item’s moving average cost. From the original MAP of GBP 10.00, it has increased to GBP 11.00. The GBP 1.00 difference is the expected duty.

6. If the Landed Cost in Step 4 was posted without ticking the ‘Duty Affects Stock’ option, the Journal Entry will show an increase in the Custom Expense Account and will not get embedded into the value of the item in inventory.  It would show as:

The Average Cost for item A2000 remains at GBP 10.00.