Fixed assets - sale of cartridges

Others 1191 views 3 replies

falgunkanani

32 Points Joined March 2007

Printers are given to the customers without any charge for a period of 3 years . However cartridges are sold to the cutsomer and the customer is charge on printing of per page basis. At the end of 3 years contract, the printer is either returned by the customer or purchased by the customer at a mutaully agreed price.

The following question arises :

1. Whether printers are to be treated as fixed assets or as stock in trade - Fixed assets since these printers are machinery which is used by the customer and which is generating revenue for me in terms of use per paper basis. It can be treated as Inventory since the customer might purchase printer after 3 years and without giving printer it is not possible for me to earn revenue per paper from sale of cartridge

2. If the printer is purchased by the customer after 3 years, will the transaction be treated as a leasing business.

regards

Falgun

Replies (3)

Giridhar S Karandikar

Team Lead

7558 Points Joined November 2011

Printers need to be treated as Stock, as you dealing in the business of selling the printers. It is immaterial whether the customer uses it for his business or not. The sale from Cartridges also needs to be treated as stock. Only the printer that you use for your business will be treated as an Fixed Asset & you can claim depreciation on it.

I do not understand that how can you provide the printers to your customers without any charge for 3 years. The income that you receive by providing the printers will be considered as Income from leasing.

falgunkanani

32 Points Joined March 2007

Thenk you Mr. Giridhar

My contract with the customers state that the printers can be brought after end of the contract period. But based on the experience, these printers are generally not purchased by the customers and the contract for suplly of cartridges is generally extended. hence I would treat this as fixed assets since the printers are used for generating revenue.

I will also treat these printers under plant & machinery ( dep 15% Income tax act) and not under classification of computers.

By providing printers to the customers free of charge, I am charging for cartridges sold to them and the contract mentions that cartridges will be purchased from me only.

VENUGOPALAKRISHNAN P K

ACCOUNTS OFFICER

33 Points Joined December 2011

DEAR MR FALGUN

I feel you are right. The printer is not leased out by you, but you installed it at customer place and charge it on the basis of number of pages printed. So the printing charges is an income for you. Like wise the printer catridge is your stock in trade.

At the end in case you sell the printer to the customer, it can be treated as a sale of fixed asset and accounted accordingly.

I feel this is the right accounting, i request others to put their comments here.