How do you handle auction lots of multiple pieces that you sell on eBay?

[treadstone68]

Hello

     Hopefully not a dumb question that has been asked 40 times....

    Most of the stuff I sell on eBay is sourced from estate sales and auctions.  Quite often I get lots that contain several items, of which some are unrelatedsuch as a music box and a book.  If I paid say $10 for the example lot given, and sell each item in it's own listing, is it okay to arbitrarily make the 'cost of goods' $9 for the music box and $1 for the book (as far as taxes go)?  Or does it even matter?   I try to make a best guess of what the value is of each item and split the cost of goods appropriately... does anyone do this differently?

[dinomitesales]

Yeah, that's kind of what I do. If I buy a 'lot' of something, and the approximate value of each piece is similar I'll just divide the cost of the lot by the number of sellable items and just use that number as the cost of goods for each of them. If one or more of the items are significantly more valuable than the others I'll just attribute a larger amount of the lot total to those items as COGS (or just attribute all of the cost of the lot to thos specific items, and everything else has a zero dollar cost for tax purposes).

Whatever works for your bookkeeping/accounting methods.

[flipistics]

I don't know if I'm doing it right, but for auctions I try to divide it evenly (when possible) between all saleable items from the same lot. If I paid $5 an item for the stuff in the lot and some items are worth $40 and some $20, I would just put the COG for each item as $5. If there's a large discrepancy in value I may proportion it, especially if the averaged COG is greater than the value of the item, but I try not to overthink it.

If you keep some of the items for yourself and try to excessively pass the cost of the lot off to the selling side, you might be in trouble. Say you bought a computer and a flash drive for $500, and you keep the computer and sell the flash drive.  Valuing the flash drive at $450 while selling it for $10 would probably land you in some hot water in an audit.

[ricarmic]

I also break down large to extra large to extra extra large (vanloads) of material from one purchase price.

What I do is assess the expected retail value of the material, and then I know the "cost of goods" as a percentage.

So in your example if the music box is expected to be worth $45 and the book $5 the total retail price would be $50. The cost was $10, so the cost of goods sold is 20% (10/50x100).

This would make the COGS for the book $1 and the music box $9 coincidentally the same as you picked.

Of course if stuff sells higher or lower than the expected amount this number would vary, but on average the "more thans" about equal the "less thans" assuming one is reasonably good at estimating the sales value.

I don't think there is really a wrong way to do it as long as the approach is reasonable, ie the arbitrary method probably had some reasoning behind why, the only problem down the road is one has to remember the arbitrary reasoning if someone asks. (In my case I document my expected valueations (at a reasonably high level)  so I have a reasonable reference point if someone asks down the road how I got my COG percentage)