INSURANCE SPARES

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rahul garg (Querist)

08 February 2009 sir i m on audit of IOCL, they are capitalising insurance spares.As we know insurance spares needs to be written off during the life of asset to which it belongs,this means dep will be charged retrospectively, but i have a problem that what should be done with the depreciation which relates to previous years.will it be treated as a prior period expense in the P&L?

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)

08 February 2009 Insurance Spares whose use is in connection with a particular asset only should be written off during the life of the asset.
Otherwise they should be written off during their own useful life.
Now, going to your question, prior period items which are not reflected in financial statements as a result of error or omission.
So, it will be trested as an prior period expenditure.
Also, important is and accounting standard interpretation which lays down the criteria whether to classify "Spares" as consumables being charged to income statement or as fixed assets being capitalized.

rahul garg

rahul garg (Querist)

08 February 2009 mr. nitin hw can we say this capitalisation is due to error or omission as we dont knw in advance wht we will be capitalising in future....

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)

10 February 2009 Sir,
I opined that omission is of earlier year's depreciation which is a prior period expenditure.

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