ACCOUNTING FOR CONTAINERS

(PACKAGES OR CASES)

In business, where goods (items to be sold) are

manufactured/produced, it is necessary to have the product
presented in such a way that it appeals to the buyer, is
protected and safe from easy damages and losses; is easy to
carry or move or conveyed from the point of manufactured to
the customer or user (consumer) . Such medium may be
described as a container, a package or a case. Depending on
the nature (quality, quantity, size, form, etc.) of the product,
such containers, packages or cases may take the form of a
packet, a crate, a tin can, a sack, a bag, a bottle (plastic or
glass), a cask, boxes, buckets, barrels, trunks, drums etc. So,
for most products, it is important, necessary and essential to
provide some sort of packaging to ease carriage and dispatch
to customers/users.

In accounting and especially in cost accounting, we are

concerned with the cost of production/manufacturing,
distribution cost, administration cost, etc., so that the cost of
goods sold could be easily identified and recorded to determine
the gross profit of the business. To arrive at the net profit of the
business, other cost/expenses incurred in generating profits
(Gross/Net), one of which may be the distribution cost, have to
be taken into account. The cost of containers, packages and
cases may have implications here. From manufacturing to
distribution, container conveying the product, or in which the
product is packaged (presented) may be produced by the

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business or acquired (purchased) from other manufacturers to
satisfy the need of the business, in that regard. Whether a
container is also produced by the manufacturer of a product or
acquired for use to package the product, the cost of it has to be
identified, recorded and accounted for. In this process of
accounting, the container may be treated as part of the final
product or separate from the product (its content). When it is
treated as part and parcel of the product (not separate), that
container may not be re-usable, as it is discarded and cannot
be reused after the product (content) it conveyed is used up.
Therefore, in accounting, that container is treated as part of the
manufacturing cost. However, for certain goods, the containers
may be separate from the product and may be re-usable. In
such situation, the cost of the container may be treated as a
distribution cost/expenses (if the container is not returned). Re-
usable containers may be returnable for re-use, or charged to
the customer if not returned. Usually, a company policy may
specify whether or not the containers should be returned and
the conditions for returning or not returning them.

Considerations for accounting implications in accounting

for containers, packages or cases.

(1) Certain containers are regarded as either expendable or

non-expendable. The accounting treatment for each differs
(2) Whether the containers are produced by the manufacturer
of the product or acquired (purchased from another
manufacturer), there may be a stock of containers at every
point. The inventory of containers at the beginning and at the
end of a period would be ascertained and accounted for.
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(3) Between the beginning and the end of a period (operating
period), there may be further acquisition or production of more
containers to satisfy its customers with deliveries.
(4) Between the beginning and the end of a period (operating
period), some containers (which are returnable) may be issued
out to customers, and some of the issues may be returned
while some of the issues may not have been returned (during
the operating period) and some may not be returned at all (and
may be assumed and treated as sold to the customers).
(5) A time period (Deadline) within which returnable
containers should be returned (or expected to be returned) is
usually expressed in the conditions/policies of the
business/entity. There exist accounting implications for
containers not returned within due or specified period for their
return. Also, there may be at a time, containers which are in
the hands (possession) of the customer because the due time
for their return has not expired within an operating year
(period).
(6) It may be that some containers could be accidentally
damaged, destroyed, scrapped, refurbished, reconditioned,
etc., for use during the period of operation and some may be
out rightly lost or missing. Some or all of these may lead to a
loss.
(7) Certain containers may depreciate in value over time.
(8) At any point in time (either at the beginning, during or at
the end) in an operating period, the stock of containers may
consist of those at hand in the business warehouse/storehouse,

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and those (returnable but not yet returned) in the possession of
the customer.
(9) These various transactions/considerations, with their
attendant accounting implications, may result in some profits
or losses on the containers.

Accounting for containers (Packages or Cases):

Recording mechanics and entries in the books.

In considering the mechanics and accounting entries for

transactions involving containers (packages or cases),
emphasis is placed here on two categories of containers
namely:

(1) Non-Returnable Containers

(2) Returnable Containers.

Non-returnable containers: the cost of containers which are

treated as part of the product and so used up and discarded as
non-returnable are included in the manufacturing cost of the
product. The cost, even when applied into production cost at a
rate of cost plus (whether produced by the company for use by
the company or acquired from another company for use) is a
constituent of the cost of sales. Therefore, no special
accounting process or ledger accounts may be opened than
what we already learnt in manufacturing accounts.

Returnable containers: For the purposes of this lecture, our

emphases are on the relevant ledger accounts to be opened to
record the relevant transactions pertaining to containers

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(packages or cases) and the appropriate accounting entries
required to record them in the relevant books of accounts.

Some of the key and common transactions associated with

containers account include:

 Purchase or acquisition of containers (outsourced or from

within)
 Valuation of containers lost.
 Valuation of containers damaged and scrapped
 Valuation of containers in stock (within and with
customers)
 Deposits receivable on containers issued out
 Deposits refunded to customers who returned containers
 Deposits refundable to customers when containers would
be returned, etc.

Note: with regards to deposits receivable, deposits refunded

and deposits refundable; these are applicable where it is
required that the containers be returned. Deposits are required
of (or invariably imposed on) the customer. Such deposits may
be refundable in part, or in full, when the containers are
returned, depending on the specifying policy in the agreement
for the issue of returnable containers. All of these transactions
may be recorded in a single container accounts, but that may
be complex and complicated to apply, understand and
interpret. Therefore, we shall separate the effects of these
transactions, relating to returnable containers, in the following
ledger accounts:

1. Containers account (container stock account)

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 2. Containers suspense account (or customer account)
3. Profit or loss (on containers) account.

Usual content of the accounts:

Containers account (or containers stock account): transactions

entered in this account would include, among others, the
following.

 Cost of containers purchased

 Value of containers scrapped
 Value of containers retained by customers and those in
stock (note that containers in customers’ hands, which are
expected to be returned, are part of containers stock, but
are not regarded as part of stock available for
issue/dispatch to customers, until actually returned.
 Any sum which are written off the value of containers in a
period, etc.

For clarity, this account may be presented with three separate

columns showing quantity, rate/unit values and total amounts
on each side (debit and credit) of the ledger account. The
closing balance on this account is the closing stock of
containers and it is included in stock and reported on the
Financial Position Statement of the business.

Containers suspense account (containers’ customer

account)

Transactions commonly recorded/disclosed in this ledger

account include:

 Opening refundable deposits on returnable containers

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  Closing refundable deposits on returnable containers
 Deposits receivable on containers issued to customers
 Deposits refunded to customers on returnable containers,
refunded in line with the terms of issues.
 Deposits forfeited, by customers, on returnable containers
not returned, at all, or not returned within the terms of
issue.
 Any sum or amount written off the value of containers in
the period.
 Any such expenses which are incurred to repair, refurbish
or recondition the containers for re-use.
For clarity, this ledger account is also presented with three
separate columns on each side (debit and credit)
indicating quantity, rate/unit value and total amounts.

Profit and loss on containers accounts:

At the end of an accounting period for the business, any profit

or loss which might have arisen on the transactions involving
containers are closed and transferred to the profit and loss
account of the business for the period under consideration.

Other summaries and balances at the end of the accounting

period are treated, depending on what each represents, in the
financial position statement, as follow:

 Closing balance of returnable deposits, as it would be

appropriate, may be deducted from debtors or recorded
separately as part of creditors (either in part or in full), as
applicable in the accounting period.

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  The closing balance on the containers account (containers
stock account) is treated as part of the stock of the
business in the financial position statement.

ILLUSTRATION ONE:

ABC Ltd has 14,000 and 27,500 crates of minerals in its

warehouse and in the hands of their customers respectively.

1/1/2022 during the year they purchased 8000 crates at N30

each. 300,000 crates were issued to customers while 289,000
crates were returned and 350 crates were damaged in the
warehouse. There is charge for empties to the company’
customers and stock of crates are valued at N20 per crate.

Required:

Prepare container accounts.

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 ABC LTD
Container Account
Particulars Unit Rat Amou Particular Unit Rat Amoun
e nt s e t

Stock b/d N N

In hand 14,00 20 280,0 P x L Alc: 350 20 7000

0 00
Damage
Crates

With 27,50 20 550,0

customers 0 00

Purchases 8,000 30 240,0 Depreciatio - - 80,000

00 n (N30-
20x8000)

Stock cld

In hand 10,65 20 213,00

0 0

With 38,50 20 770,00

customers 0 0

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 49,5 1070, 49,5 1,070,
00 000 00 000

Calculations
In hand: 300,000 – 289,000 – (350) = 10,650
With customers = 27,500 + 11,000 = 38,500

Workings
Beginning of the year 27,500
Containers sent 300,000
327,500
Containers returned 289,000
Unit of containers at the end of the year 38,500

ILLUSTRATION TWO:

Apex & Co Ltd buys containers at the rate of N200 each and
charges them to customers at the rate of N230 each.
During the year ended 31st December, 2019, 9,200 containers
were bought while 126,400 were sent to customers.
The customers are allowed to return the containers within 2
months for refund of N150 per containers. On 1/10/2018
container stocks in hand and with customers were 27,900 and
12,800 respectively.
Containers returned by customers during the year total
114,700 while 860 containers were retained by the customers

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beyond the 2 months period. Containers damaged in the
warehouse were 130 and the sum of N59,200 was paid for the
repair of another 1,640 containers. All containers stock are
valued at N120 each.
You are required to record these transactions relating to
containers in the relevant accounts of the company.

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 Apex & Co. Ltd
Containers stock/Trading Accounts
Particular Unit Rate Amount Particular Unit Rate Amount
s s

Stock bld Containers

suspense
a/c: profit
on
containers

Warehouse 27,900 120 3,348,000 issued 80 10,112,000

Customers 12,800 120 1,536,000 Containers 860 150 129,000

retained

Purchases 9200 200 1,84,000 Damaged

Repairs 59,200 Containers 130

Stock b/d:

Warehouse 25,270 120 3,032,400

Net on 9,327,000 Customers 23,640 120 2,836,800

containers

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 49,900 16,110,20 49,900 16,110,20
0 0

1. Containers issued (230-150) = 80 x 126; 400 = 10,112,000

2. Stock with customers = 126,400-114,700 = 11,700 + 12,800-860 = 23640
3. Stock in hand = 27,900-130-1640-860 = 25,270

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 Apex & Co. Ltd
Containers suspense a/c (movement with customers)
Particular Unit Rate Amount Particular Unit Rate Amount
s s

Profit on Stock B/d

containers

Issued 30 10,112,000 Customers 12,800 150 1,920,000

Sundry
debtors

Containers 860 150 129,000 Container 126,400 230 29,072,000

retained sent

Sundry
debtors

Containers 114,700 150 17,205,000

returned

Stock c /d

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Customers 23,640 150 3,546,000

139200 30,992,00 139200 30,992,00

0 0

Workings
12,800 + 126, 400 = 138,200 – 114, 700 = 24,500-860
Stock at the end = 23,640

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 Apex & Co. Ltd
Statement of Next profit
N
Profit on containers sent 10,112,000
Profit on containers retained
(230-200 x 860) 25,800
10,137,800
Less damaged
(120 x 130) 15,600
Repairs 59,200
Depreciation
(230-150 x 9200) 736,000 810,800
9,327,00

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