Accounting entry- hard disk purchased

Originally posted by : karan jit singh
	Today I argued with accountant. He said me that generally we take all purchase of computer related items which generally available in Stationary is treated as Stationary by us. We are doing from last 8 years. Guys you know I amazed...How ppl follow there last generations without analysing it. Now I need a proof or AS or any thing which I can make his mouth shut as soon as possible.   Refrer Ajay Chahal answer.. In my opiniion, he is right and also answer comply with the Accounting Standard-10

1. hence company's entry is totally wrong (we can never use stationery a/c instead of computer or computer RM) 2. as practical approach - I think no internal hard disc are available in market above rs 5000 even 750 GB.(Seagate or Samsung) Therefore I m 100% sure it is external one, so its additional for computer and make it more efficient so I am agree with CA sumit ji. Computer a/c Dr. To party/cash/bank(as per case)

Interesting subject going through the comments and found that equal votes for both points, i.e. expense and capitalization of Computer hardware. I did some research (both National and International standards) and my interpretations are:

 

For a replacement to be capitalized it must be a part of a major repair or up gradation that increases the value and/or useful life of the asset. A replacement may also be capitalized if the new item or part is of significantly improved quality and higher value compared to the old item or part. Replacement or restoration of an item to its original utility level is not capitalized.

 

Determinations must be made on a case-by-case basis.

 

If the old hard disk is crashed and you want to replace it, it is purely repairs & maintenance.

 

If the old hard replaced that significantly increase efficiency of your computer, you shall capitalize it (I dont think you can add substantial efficiency with a HD or Rs 13,000. It's not a server)

 

Practically, a lot of difference will make if Rs. 13,500 threshold number for accountant as per your company policy. If I am an accountant for a small supermarket / grocery, I will capitalize it. But if I am an accountant for Reliance Industries, I will throw this amount to stationary or office supplies expenses (assume it’s office staff’s PC).

 

Appreciate your for bringing this subject. Such subjects will give huge space to go back to basics and apply practical thoughts (rather than mere bookish)

 

"Practically, a lot of difference will make if Rs. 13,500 threshold number for accountant as per your company policy. If I am an accountant for a small supermarket / grocery, I will capitalize it. But if I am an accountant for Reliance Industries, I will throw this amount to stationary or office supplies expenses (assume it’s office staff’s PC).' said by CMA Bhaskar.

This is what takes place in reality.
 

Yep, I know the rule of  "materiality principle"  but treating it as a stationary item is somewhat I felt unusual.  No doubts that company have a huge share capital and lumpsum expenses which is very huge( as compared to Hard Disk amount).

Let me insure you that in my case there is no replacements. A new HD purchased from market.

Can I say that the amount should be capitalised bcoz it constitutes "ACCESORIES OF COMPUTER" which will be added in major head of : "Computer and Accesories"

Thanks

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For your opinions n views

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Dear Karan,

 

There is nothing wrong with your treatment. You are going to use it more than 1 year (or operating cycle) and defelitely, it add efficiency to your computer.

 

Regards,

Bhaskar