18 May 2016
Can you please explain your IDEA about "operational spares"? And then please also tell me why do you think that "operational spares" and non operational spares" stand on different footings. Whether or not, spares will form part of INVENTORY. Your views please.
18 May 2016
actually my company is about to buy spares and named them as Operational spares.. and i have to give a view ..whether it is inventory or PPE.. my view is that.. if they are for consumption in production process then will be part of inventory or if they are for maintaining minimum level of inventories in order to operate assets then the same is PPE
Am I correct sir?
18 May 2016
The purpose of the "spares" is important rather than its nomenclature. If you are buying the same in order to use it as SPARES, then it will be part of INVENTORY. (At the most, as of 31st March, you may, depending upon the then condition, group it under "non current", in stead of "current". But it can NOT go to PPE.
18 May 2016
see the point is somewhat like this..... while buying a vehicle, one additional tyre,tube (Stepney as is noirmally called) comes along with the vehicle, included in the ex show room price. This will definitely go in PPE. But along with stepney if you, at your own, buy one more tyre,tube, the same shall go to inventory. Because you buy some things at the time of capital asset purchase, need not , per se, change the CHARACTER of the asset. Your views please.
18 May 2016
The Purchase order says, "Optional price, for 2 years operational spares"
As the stephany is also optional but price is included thus to be capitalized.
but here the price of the spares are not included.so till this it will be inventory.
okay!
so in ur eg. the spares is the other tyre which i have bought in my own.
now..
if that tyre will be used when any unexplained breakdown occurs..i.e. insurance spare..
or if will be used as replacement when the tyre life will get over.ie. capital spares.
now both capital & insurance spare have to be capitalised?
answer pls.
if capitalized.. then from when we have to charge depreciation on it.? pls ans.
If the dep. js to be charged from the day when the spare is actually put on use.
then till that day whether we include such spare in inventory?
probably not..😃
If the spare is not capital nor insurance..but machine spare ..the same will be charged to revenue? pl ans.
if the spare is capital or insurance and are to be capitalised..then pls ans. if they are consumed in first year of purchase.then will they be charged to revenue irrespective of 'to be capitalised' ?
Ohh.. i need ur valuable suggestion plz.!
ref. http://googleweblight.com/?lite_url=http://www.knowledgebible.com/forum/showthread.php/708-Accounting-treatment-of-insurance-spares&ei=krtyarFD&lc=en-IN&s=1&m=857&host=www.google.co.in&ts=1463552940&sig=APY536wGAoZzQkBQ_GMIpCxn6jR_W31WLQ
18 May 2016
Let us take one example say on 1.1.2016 i buy machinery. IT will go tp PPE. On the same date and along with the same consignment, i buy some OPERATIONAL spares. It will go to INVENTORY.
Now on 31.3.2016.......the judgemental call occurs as to classify this inventory as "Current" or "Non Current". No one will ever expect any insurance/mishap to occur and hence it will be shown as "non current" Next is... let us say, the spare is used be it in very first year...before 31.3.2016 or in any subsequent year.......it will debited to repairs to machinery
18 May 2016
Okay got ur point.
lets take it to next level.. 😄
Imagine the same spare is to be uaed only when the main equipment got an unexpected breakdown .ie. inaurance spare.
what will be the treatment now?
18 May 2016
same as above......no any extra enduring benefits are gotten with the fitment of the said spare....be it operational or insurance. It is repair and maintenance.
18 May 2016
Thanks
pls. refer the link and pls. answer for the same. am confused.
http://googleweblight.com/?lite_url=http://www.knowledgebible.com/forum/showthread.php/708-Accounting-treatment-of-insurance-spares&ei=krtyarFD&lc=en-IN&s=1&m=857&host=www.google.co.in&ts=1463552940&sig=APY536wGAoZzQkBQ_GMIpCxn6jR_W31WLQ
18 May 2016
The accounting policy of the said COMPANY was “Initial pack of spares procured along with plant, machinery and equipment are capitalised and depreciated in the same manner as plant and machinery.” Since you have reported the case of an aeronautical company...let me tell you one thing....the aero engines follow POISSON distribution, as is said in the subject Statistics. While flying the aeroplane, one entire SPARE engine; capable of ,at least make the aeroplane land safely on a nearby runway, is fitted to each aeroplane. Now needless to say.... this SPARE engine has to be capitalised.... it can NOT be said to be inventory. (Please refer the discussion on POISSON distribution) What we were discussing was, NORMAL distribution as per Statistics. I think that should make the confusion over....... Your views please.
18 May 2016
m not talking about aero.
m asking for general only.
my co. policy says ' spare part(insurance) used for only principal equipment need to be capitalized.
as the said bought spares are operational for the principal equipment only.
i should treat it like insurance spare.
ur views!
18 May 2016
is s/he not aware of Company policy or what? You can always make her/him aware of the company policy, is not it? I am sure, once you convince your boss about the company policy, boss will agree to capitalise
18 May 2016
i have discussed with them
but have not discussed about insurance or machine spares.
m gonna ask them for these classifications now.
thanks for ur support!
will post you the last result.
CAclubindia
