Landed Cost Adjustments & Inventory Capitalization

When importing merchandise or acquiring industrial raw materials, the purchase price paid to the overseas vendor is only one component of true inventory acquisition cost. Companies routinely incur significant third-party expenditures, including ocean/air freight, customs tariffs, port demurrage, clearance agent fees, transport insurance, and local inland haulage.

Under standard accounting frameworks (IFRS and SOCPA), these ancillary acquisition costs cannot simply be expensed into administrative overhead—they must be capitalized into inventory asset values and cost of goods sold (COGS). BIZA's Landed Cost Adjustments module (/procurement/landed-cost-adjustments) automates this complex accounting process.

---

1. The Landed Cost Problem: Delayed Ancillary Bills

In international trade, goods frequently arrive at the warehouse weeks before final clearance and freight invoices are delivered by logistics carriers:

• The Valuation Risk: If inventory is received and sold before freight is capitalized, product profit margins appear artificially inflated, followed by an unexpected margin collapse when carrier bills arrive.
• BIZA's Solution: BIZA allows warehouses to receive inventory immediately at estimated or purchase bill values, and subsequently apply Landed Cost Adjustment Vouchers that retrospectively adjust item moving average costs and update Cost of Goods Sold for items already sold.

---

2. Multi-Criteria Apportionment Engine

When applying a consolidated freight bill (e.g., USD 4,200.00 ocean container freight) across a shipment containing diverse products, costs must be distributed proportionally. BIZA provides three mathematical apportionment methods:

1. By Item Value (Pro-Rata):
   • Allocates cost based on the relative monetary value of each line item.
   • Ideal for customs tariffs and ad-valorem import duties that are assessed as a percentage of CIF value.
2. By Item Weight (Gross/Net Weight):
   • Allocates cost based on total weight (kg / metric tons).
   • Essential for air freight, container shipping, and heavy industrial metals where logistics pricing scales by weight.
3. By Item Volume (CBM):
   • Allocates cost based on cubic meters (CBM) consumed in the container or transport truck.
   • Ideal for lightweight, bulky merchandise such as packaging, furniture, and plastic wares.
4. Manual Allocation: Custom overrides for specific handling fees or specialized inspection surcharges tied to a single item.

---

3. General Ledger Accounting Workflow

When a Landed Cost Adjustment is posted, BIZA executes precise accounting adjustments:

Scenario:

• An electronics shipment arrives with purchase cost of SAR 100,000.00.
• A freight and customs bill of SAR 15,000.00 arrives from a logistics provider.

Accounting Journal Entry:

$$\begin{aligned} \text{DR} \quad & \text{Merchandise Inventory Asset (1200)} & \text{SAR } 15,000.00 \ \text{CR} \quad & \text{Accounts Payable — Logistics Carrier (2000)} & \text{SAR } 15,000.00 \end{aligned}$$

What Happens if Goods Were Already Sold?

If 40% of the shipment was already delivered and sold to customers under delivery notes prior to the landed cost voucher:

• BIZA capitalizes 60% (SAR 9,000.00) into remaining on-hand Inventory Asset.
• BIZA automatically debits the remaining 40% (SAR 6,000.00) directly to Cost of Goods Sold (COGS — 5000), ensuring financial statements accurately reflect true gross profit without distorting current stock valuation.

---

4. Landed Cost Traceability & Profitability Analysis

• Item Master Valuation: Automatically updates the item's Moving Average Unit Cost (weighted_average_cost), ensuring downstream sales quotations and margin calculations use true acquisition costs.
• Audit Trail & Document Chain: Links the Landed Cost Adjustment voucher directly to the original Purchase Orders, Goods Receipt Vouchers (GRN), and Logistics Supplier Bills.
• Product Profitability Reports: Enables accurate net margin reporting by product line, accounting for shipping, tariffs, and handling overhead.