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Accounting

CA Manasa (CA) (1479 Points)

23 December 2009

While checking purchases i have noticed that the company has purchased spares for a welding machine over a value of 10000 Rs. The servicing was also done for this machine by the same party for an amt of Rs 5000/-
Quotation shows sale of spare and service of Welding Machine.
As per this quataion the party has even charged Vat and Service Tax in the bill.
The company acccounted it as a job wrk charge and deducted TDS on it.
Now my question is firstly whether it should be treated as job work or it should be captalise since the machine forms part of PM.
Wat should be the exact treatment.
Pls help me so that i can report it.

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7 Replies

First!!!! (student) (162 Points)
Replied 23 December 2009

Servicing of Machine is revenue item and Dr to P&L

Spares if purchased and used on regular basis then Dr to P&L else capitalise

Vikram Gagneja (a/c) (108 Points)
Replied 23 December 2009

this is not job work.

the whole amount is capitalise

and debited to machinery a/c

because this expenditure is in capital nature

and will be capitalised

only depreciation can be claimed on the whole amount at the end of the year

saifraj (accountant) (61 Points)
Replied 23 December 2009

As Per my view

Spares which require to Capitalised. (It is not as a repair)

Servicing is p &l item

gokul (Accountant) (126 Points)
Replied 23 December 2009

Probably the repairs of the said welding machine would be just to keep the machinery in proper working condition and there is no incresse in the performance or increase in the useful life of the welding machine.

Whenever any spares are replaced to any machinery the test is whether there is any increase in future economic benefits that is exepected to flow to the entity or there is significant improvement in the operations from previously assessed or there is a significant reduction in operating costs because of such replacement. If the answer is affirmative to above then the items are capitalised else they are charged off.

Regards

NARENDER PAWAR (CA final Student) (337 Points)
Replied 24 December 2009

THERE IS NO NEED OF CAPITALISED BECAUSE THIS IS A REVENUE EXPENDITURE, BUT THIS IS ALSO NOT A JOB WORK, BECAUSE WE CALL JOB WORK THAT WHEN THE THE COMPANY SUPPLY MATERIAL,BUT IN THIS CASE COMPANY NOT SUPPLY MATERIAL SO THAT IS NOT A JOB WORK ALSO, THIS IS A REVENUE EXPENDITURE & DEBITED IT TO PROFIT & LOSS ACCOUNT AS REPAIR OF MACHINERY.

Vidhya (111 Points)
Replied 24 December 2009

Purchase of spare can be capitalised if it was required to keep the machine in working condition/if it increases the future economic benefit /and also the value of the machinery.

Servicing needs to be charged to P&L account

Rakesh Bansal (CA) (75 Points)
Replied 24 December 2009

Hii Maansa as per my openion first i will say,,, this is surely not a job work. now another aspect wt to do wth servicing charges...

as per my openion it hould be debited to P&L A/C

becuse servicing seems a routine servicing jus to keep machine in proper working condition,,,, as u said quotaion is also mentioned this fact... hence it is of revenue nature and should not be capitalized....

thanX

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