3

Container accounts

Objectives
After you have studied this chapter, you should:

• be able to distinguish between disposable containers and returnable containers

• know how to enter transactions relating to returnable containers in the journal

3.1 The nature of containers

A container is anything in which goods are contained. This may consist of a packet
containing cigarettes, a large wooden crate containing tractor parts, or a liquid gas
cylinder. Some will be returnable by the purchaser after use, an obvious example being
the gas cylinder, while others such as the cigarette packet will be disposed of at will by
the customer. The returnable containers will often be subject to a deposit being charged
to the customer, a refund being allowed when the container is returned in good condition
to the supplier.
In suppliers’ books it is therefore convenient to divide containers into those which are
(1) not chargeable to the customers, and (2) those where a deposit charge is made to the
customer.

3.2 Containers not charged to customers

Many containers will be treated as manufacturing expenses, e.g. cigarette packets, flour
bags or tin cans containing foods. Theoretically they are a distribution expense if the
contents and the containers are regarded as being two distinct items, and as such would
be chargeable to the profit and loss account. However, in reality, the containers for such
items are an integral part of the goods sold and are therefore chargeable to the
manufacturing account. On the other hand, returnable cylinders in which goods are
delivered would be chargeable to the profit and loss account.
There will normally be a stock of containers in hand at the end of each accounting
period. Exhibit 3.1 shows an account for cartons in which salt is packed for sale.
Exhibit 3.1
£
Stocks of containers 1 January 19X6 100
Containers bought in the year ended 31 December 19X6 2,800
Stock of containers 31 December 19X6 300
"& Business Accounting 2

Containers

19X6 £ 19X6 £
Jan 1 Stock b/d 100 Dec 31 Manufacturing account 2,600
Dec 31 Cash (bought during the year) 2,800 ,, 31 Stock c/d 300
2,900 2,900
19X7
Jan 1 Stock b/d 300
For returnable containers on which deposits are not charged the question of whether or
not accurate statistical records would be kept would depend on the nature and value of
containers.

3.3 Containers on which deposits are charged to customers

There are containers which many purchasers would not return if they were not charged
with a deposit refunded only on return. These are obviously containers which require
more than a marginal effort to return, or those which could be put to alternative uses.
The deposit chargeable must therefore be sufficient to discourage the purchaser from
keeping the containers after use, but should not be so great as to deter him from buying
the goods in the first place. In some instances, a time limit is fixed within which the
container is to be returned to obtain a cancellation of the deposit charged. Common sense
must, however, prevail, as it would be unwise to refuse to allow returns in circumstances
which could bring about a worsening in the firm’s relationship with customers it wished
to retain.
Accounting for containers must therefore fulfil two needs, (a) it must enable some form
of check on the stock of containers, and (b) it must reveal the amount of deposit
returnable to customers. This can be satisfied, for (a) a containers stock account can be
kept, and for (b) a containers suspense account may be opened.
Volume 1 has already illustrated the need for the depreciation of containers to be
provided normally by the revaluation method. The containers stock account will therefore
provide for the depreciation element by the process of revaluing the containers at the end
of each accounting period. Each container account may also include, in addition to the £
columns, further columns for quantities and for the monetary rates at which the
transactions are carried out.

3.4 Comprehensive example where a deposit is chargeable

Exhibit 3.2
A new firm, IVY and Co, sells its goods in crates on which a deposit is chargeable to the
customer, a credit being allowed on their return within three months.
During the year ended 31 December 19X5:
A 50 crates were bought for £3 each.
B 180 crates were sent to customers, these being charged to their accounts at £4
deposit each. (You may well wonder how 180 crates can be sent out when only
50 have been bought by IVY and Co. The figure of 180 consists of recounting
the same crates, as they are sent out and returned several times each year.)
 Container accounts 49

C 150 crates were returned by customers, credits being entered in their accounts for
£4 each.
D 10 crates were kept by customers beyond the three months’ limit, and they
therefore forfeited their right to return them to obtain a refund of the deposit.
E 2 crates were damaged and were sold for £1 each.
On 31 December 19X5 the following facts are relevant:
F There were 20 returnable crates with customers.
G There were 18 crates at IVY’s warehouse.
The stock of crates at 31 December 19X5 are to be valued at £2 each to provide for
depreciation through usage.
The identifying letters A to G are shown against the recorded transactions in the
accounts that now follow.
Containers Stock
Rate No. Rate No.

£ £ £ £
19X5 19X5
Dec 31 Cash (bought during Dec 31 Containers suspense:
the year) A 3 50 150 kept by customers D 4 10 40
,, 31 Cash: damaged crates
E 1 2 2
,, 31 Profit and loss: cost
of container usage 32
,, 31 Stock c/d
In warehouse G2 18 36
At customers F 2 20 40
50 150 50 150
19X6
Jan 1 Stock b/d
In warehouse G2 18 36
At customers F 2 20 40
Containers Suspense
Rate No. Rate No.

£ £ £ £
19X5 19X5
Dec 31 Sales ledger: crates Dec 31 Sales ledger: crates
credited to customers’ charged to customers’
accounts on return C 4 150 600 accounts B 4 180 720
,, 31 Containers stock:
kept by customers D 4 10 40
,, 31 Deposits on crates
returnable c/d F 4 20 80
180 720 180 720
19X6
Jan 1 Deposits on crates
returnable b/d F 4 20 80

The balance sheet will show the balances in the following manner:
# Business Accounting 2

IVY & Co
Balance Sheet as at 31 December 19X5

Current assets £
Crates – at valuation 76
Current liabilities
.
Containers suspense – deposits returnable 80

3.5 Comprehensive example where there is a true charge

Sometimes containers are charged out to customers at an initial price greater than that
allowed on their return. The difference represents a hiring charge. If the same data is
taken as in Exhibit 3.2 but, instead of £4 being allowed on return, it had been been
restricted to £3, the accounts would have appeared as follows:
Containers Stock
Rate No. Rate No.

£ £ £ £
19X5 19X5
Dec 31 Cash (bought during Dec 31 Containers suspense:
the year) 3 50 150 kept by customers 3 10 30
,, 31 Profit and loss: profit ,, 31 Cash: damaged
on container usage 138 crates 1 2 2
,, 31 Containers suspense:
Hiring charge 180
,, 31 Stock c/d
In warehouse 2 18 36
At customers 2 20 40
50 288 50 288
19X6
Jan 1 Stock b/d
In warehouse 2 18 36
At customers 2 20 40
Containers Suspense
Rate No. Rate No.

£ £ £ £
19X5 19X5
Dec 31 Sales ledger: crates Dec 31 Sales ledger: crates
credited to customers’ charged to customers’
accounts on return 150 450 accounts 4 180 720
,, 31 Containers stock:
kept by customers 3 10 30
,, 31 Containers stock
hiring charge 180
,, 31 Deposits on crates
Returnable 3 20 60
180 720 180 720
19X6
Jan 1 Deposits on crates
returnable b/d 3 20 60
 Container accounts 51

The balance sheet would have appeared in the following manner:

IVY & Co
Balance Sheet as at 31 December 19X5

Current assets £
Crates – at valuation 76
Current liabilities
Containers suspense – deposits returnable 60

Main points to remember

1 Containers will either be disposable and treated as part of the cost of sales, or they
will be returnable and involve the taking and returning (possibly only part) of a
deposit.
2 Accounting for containers must enable some form of check on the stock of containers
and must reveal the amount of returnable customer deposits held.
3 Both a container stock account and a container suspense account are used in order to
record details relating to returnable containers.

Review questions
3.1 D Clark’s manufactures are sold in boxes which are returnable. They are charged out to
customers at £8 each and credit of £6 is given for each box returned within two months. For the
purpose of the annual accounts, the value of boxes in the factory and those in customers’ hands,
which had been invoiced within two months, was taken as being £1.50 each. The quantities of these
on 31 January 19X3 were 600 and 4,000 respectively.
The following were the transactions as regards boxes during the year ended 31 January 19X4
• Purchases – 5,000 at £2 each
• Invoiced to customers – 17,000
• Returned by customers – 14,000
• 450 could no longer be used and were sold, realising £100.
The number of boxes invoiced after 30 November 19X3 and still in customers’ hands on 31
January 19X4 was 6,200.
Required:
Write up the accounts in the books of D Clark to record these transactions and to show the profit
on boxes and the quantities involved.

3.2 A company makes a charge to its customers for cases in which the product is delivered. If
they are returned in good condition within two months a refund is made.
At the start of the year there were 9,600 cases in stock at the company’s warehouse and 6,100 in
the hands of customers supplied within the previous two months. The company bought 18,000 new
cases during the year and following a dispute with a supplier returned 4,000 new cases for which a
credit note of £11,610 was received. At 31 December 19X6 there were still in the hands of
customers 4,800 supplied during the previous two months.
During the year 19X6, 47,600 cases were sent to customers and 43,100 returned by them. The
company scrapped 3,500 damaged cases and sold the timber for £55. A physical check of cases in
stock in 31 December 19X6 revealed an unaccounted deficit of 420 cases.
# Business Accounting 2

• New cases cost £3 each

• Cases were charged out to customers at £5 each
• Customers were credited £4 on the return of each case
• Cases were valued for stocktaking at £2 each
Show the accounts in the books for 19X6 to record the above, and the balances of cases, in
quantities and values at 31 December 19X6.
You are required to deduce the following missing information from the details above:
(a) The number of cases kept by customers over the two-month limit for returning them.
(b) The number of cases in the warehouse on 31 December 19X6.

3.3 S Limited delivers its product to customers in returnable containers. These are invoiced to the
customer at £20 each and, if returned in good condition within six months, are credited in full. The
containers are purchased for £10 each.
At 30 June 19X6, there were 2,000 containers held in S Limited’s warehouse and provision was
made in the 19X6 accounts for an estimated liability in respect of 5,500 containers in customers’
hands. During 19X7, 1,250 new containers were purchased and 120 were scrapped.
8,750 containers were charged to customers and 9,050 containers were returned within the
six-month period.
At 30 June 19X7, the physical stocktaking showed 3,390 containers in the warehouse and
information derived from customers indicated that there was a potential liability in respect of 4,950
containers. The stocks of containers are valued at cost price.
Required:
Prepare the containers stock account and the containers suspense account necessary to record these
transactions in the books of S Limited.
(Chartered Institute of Management Accountants)

3.4 Lagg Ltd sells its goods in cases. These cases are purchased by the company at £6 per case,
but each case is written down to a standard book value (SBV) of £5 per case immediately it is
purchased. For stocktaking purposes, all cases are valued at £5 per case irrespective of whether they
are still in stock or in the hands of the customers. Cases are charged out to customers at £10 per
case, but the customer is credited with £8 per case if the case is returned in good condition within
three months of receipt.
The following information relates to the year to 31 March 19X7:
1 Stock of cases at 1 April 19X6: Cases
In stock 1,000
In hands of customers 1 January 19X6 3,000
2 During the year, 2,000 cases were purchased.
3 25,000 cases were issued to customers.
4 23,000 cases were returned by customers within the time limit.
5 1,500 cases were not returned within the time limit and were duly paid for by the customers.
Cases still in the hands of customers at 31 March 19X7 had all been invoiced since 1 January
19X7.
6 100 cases kept in stock by Lagg had been damaged and were beyond repair.
7 £1,400 had been spent on repairing some slightly damaged cases.
8 50 other damaged cases had been sold for £2 per case.
In order to keep an accurate record of its transactions in cases, Lagg maintains the following
accounts:
(i) a cases stock account in which cases are recorded at their standard book value;
(ii) a cases suspense account in which cases in the hands of customers are recorded at their return
price;
 Container accounts 53

(iii) a cases sent to customers account in which cases sent to customers are recorded at their issue
price; and
(iv) a cases profit and loss account.

Required:
Write up the following accounts in the books of Lagg Ltd for the year to 31 March 19X7;
(a) cases stock account;
(b) cases suspense account;
(c) cases sent to customers account; and
(d) cases profit and loss account.
(Association of Accounting Technicians)

3.5A KRR Ltd sells goods in containers which are charged to customers at £2.00 each. Customers
are credited with £1.25 for each container returned within four months.
On 31 December 19X7, there were 1,580 containers on the company’s premises and 5,520
containers, the time limit for the return of which has not expired, were held by customers.
During 19X8:
(i) KRR Ltd purchased 8,700 containers for £1 each.
(ii) 26,460 containers were charged to customers.
(iii) 23,720 containers were returned by customers and credited to them.
On 31 December 19X8, customers held 6,000 containers, the time limit for the return of which had
not expired.
For purposes of the annual accounts of KRR Ltd, all stocks of containers on the company’s
premises and returnable containers in the possession of customers are valued, at £1 each.
You are required to show the container stock account and the container trading account for the
year 19X8. These accounts should be provided with additional memorandum columns in which
quantities are to be shown.
(Institute of Chartered Secretaries and Administrators)

3.6A The G Company supplies gas in expensive containers which are returnable after use. These
containers cost £20 each and are charged out to customers on sale or return within six months at
£26 each. Provided they are returned within the six months period they are credited at £23 each. As
each container is returned it is inspected and overhauled at a cost of £2.
At the end of the year the company values all returnable containers in customers’ hands and
containers held in stock at £16 each.
You are advised that:
At the At the
Beginning of End of
the Year theYear
Containers held by the company 2,760 3,144
Returnable containers held by customers 4,790 2,910
During the year 3,100 new containers were purchased, 20,620 were invoiced to customers and
17,960 were returned. On inspection 260 required additional repairs costing £325 and 56 had to be
sold as scrap for £60.
From the information given above prepare:
(a) returnable containers suspense account;
(b) an account showing the profit or loss on dealings in containers.

(Chartered Institute of Management Accountants)