Cost after import duty and freight: allocating landed costs to each item

A pump bought from Japan for 100,000 yen does not cost 100,000 yen converted. Before it reaches the warehouse there is import duty, freight and sometimes an inspection fee or port storage. If those amounts are booked as separate expenses and never added to the item’s cost, gross profit looks better than it is, and an item with a high duty rate looks as profitable as one with a low rate.

Step 1: a purchase order in foreign currency

The purchase order is recorded in the supplier’s currency, for example Japanese yen or US dollars, with the exchange rate. The exchange gain or loss on payment is recorded separately, not mixed into the price of the goods.

Step 2: the customs declaration calculates the taxes

From the shipment that has arrived, you create the customs declaration (輸入申告) and enter the CIF value of each line. Import duty and import VAT are calculated automatically from the rates recorded on the item. The HS code and the rates live on the item itself, so two shipments of the same item are calculated on the same basis.

Step 3: gathering the landed costs

From the same declaration you create the landed cost document (輸入諸掛). It already contains the import duty line taken from the declaration; you add the shipment’s other costs:

• freight (運賃);
• inspection fee (検査料), when the shipment was put on the red channel and physically inspected;
• storage fee (保管料).

Each cost is a line with its own amount, so later you can still see why the cost went up.

Step 4: allocation to each item

When the landed cost document is submitted, these amounts are allocated to the cost of each item in the shipment. The allocation column on the document shows how much each item receives. From then on, the cost of the item in stock is the purchase price plus its share of the landed costs.

Checking gross profit

The gross profit report (粗利益) works on costs that include the landed costs. The demo has two shipments to compare: an item with 0 % import duty, and an item with 5 % duty that also had an inspection fee. The gross margins of the two lines differ clearly, in line with what each shipment really cost.

What to check in the demo

1. Open a submitted customs declaration and check that import duty and import VAT are calculated from the CIF value.
2. From the declaration, open the landed cost document; add a freight line and look at the allocation column.
3. Open the gross profit report and compare the gross margins of the two shipments with different duty rates.
4. Ask your accounting team which costs are now booked separately but belong in the cost of goods.