Accounting Treatment

A/c entries 3942 views 2 replies

Sandip Kumar Sen

Sr.Manager(F&A)

114 Points Posted on 20 May 2009

My company is a govt company and in the business of Power Distribution. Transformer and Energy Meter two are the most important items so used in the daily business activity. The problem is that :-

1)whether Transformer & Energy Meter will comes under the head of accounts as Inventory or Fixed Assets on purchase of the same ,as per any Act or accounting standard or common accounting principal.

2) If we consider it as Assets when the same was installed at work/business than it is very much difficult to accounting from Inventory to Assets as the items needed replacement frequently with out further delay. Then the replacement of assets by the inventory again need to be capatlize or to be consider as spare.

I am very much confused please advise me with specefic reasons. Please advice me on urgent basis. Thans in advance.

Replies (2)

Guest

Transformer & Energy Meter will be considered as inventory as your co are doing business of power distribution.

>> Rajesh

Sandip Kumar Sen

Sr.Manager(F&A)

114 Points Posted on 24 May 2009

I agreed with your views. But the actual prolem is as follows:-

1) Suppose one Distribution Transformer cost is Rs.40000/-. It is being treated as Inventory after its purchase and kept in the stors. To provide new service connection one Transformer used and its cost is capatilised and one Asset is created ( Service line including Transformer). The life of the transformer say 10 years. But after 2 years the said transformer became defective and that was replaced by a new one which cost is Rs.45000. Then what Accounting Treatment will be made for the replacement Transformer.

The defective transformer is repaired at a cost of Rs.10000/-. Then that Repaired Transformer is used for another place to replace one defective Transformer , which may be new one or repaired. Then what accounting tratment will be made. At that time that Transformer (which is already Assets) have resedual life for claim depreciation.

2) Same for Meter above type of Practicable Problem arises.

As such it is requested to help me on the background of any Act, Provision in respect of Distribution Power Business. It is also requested to know about the accounting treatment of other power distribution Companies Accounting Principal in this context. Please let me know the accounting treatment of Telephone Sets so made by BSNL.