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The accounting of spare parts has also been a subject matter of deliberation through various Expert Advisory Committees opinions (EACs) and issues under Ind AS Transition Facilitation Group (ITFG) bulletins issued by the Institute of Chartered Accountants of India (ICAI) in past. Accounting considerations for spare parts
- What Is Inventory?
- What Is Spare Parts Inventory?
- What Is The Accounting For Spare Parts?
- What Are The Journal Entries For Spare Parts Inventory?
- Example
- Conclusion
Inventoryis a term that defines a company’s physical stock. Usually, it includes raw materials and finished goods. In some cases, it may also consist of work-in-progress or work-in-process items. For a company, inventory defines any physical stock that they keep for their operations. Companies that manufacture products or resell them keep inventory...
Spare parts include small items that are extra to a company’s requirements, as implied from its name. It consists of small parts that companies can use to repair other assets. Usually, spare parts relate to the machinery that companies use in their production and other processes. Companies keep these items on hand to repair machines when the need a...
Accounting for spare parts is a complex process. Under accounting principles, these items are resources that can result in future inflows of economic benefits. Therefore, they will be a part of a company’s assets, which meets the above definition. Therefore, accounting for spare parts is straightforward when it comes to journal entries. However, th...
The journal entries for spare parts are the same for any other asset. When a company purchases these spare parts, the accounting entries will remain the same. However, the classification into different accounts will be crucial. Before passing the journal entries for spare parts inventory, companies must answer some critical questions. These questio...
A company, ABC Co., owns various machines that are part of its production process. The company acquires spare parts worth $10,000 for these machinery items on credit. ABC Co. determines that these spare parts will last less than a year since they are usable in the period. Similarly, these spare parts are not for resale purposes. Although the compan...
Spare parts are inventories that companies keep on hold for when other fixed items break down or wear out. By doing so, they can reduce or eliminate any unexpected stoppages in their operations. However, the accounting for spare parts inventories will differ based on their classification. Companies can either treat these items are inventory or fixe...
The spare part is just the items that use to replace in the repairmen process of another bigger asset. We cannot use spare parts alone, it be attached with other items in order to provide benefit to the company. One item can be both inventory and spare parts in different companies. The tire is the finished goods for the manufacturer that ...
IFRS 1 requires significant parts of PP&E items with differing depreciation methods or lives to be depreciated separately. Further, upon replacement or overhaul of a part, the company is required to capitalize the cost and derecognize the carrying amount of the replaced part.
Nov 20, 2017 · Treatment of spare parts shall be done in accordance with the prevailing applicable provisions of Accounting Standards as prescribed from time to time. Spare Parts should be treated as per the definition and recognition criteria mentioned in Accounting Standard or Indian Accounting Standard. Now let's understand the treatment of spare parts ...
- Karan Khanchandani
One of the biggest issues related to property, plant and equipment is accounting for spare parts, servicing equipment, stand-by equipment and similar items.. IFRS standards are pretty silent about this topic, the guidance is very limited and as a result, companies need to rely on careful assessment of the situation and their judgment.
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Nov 8, 2021 · In addition, if an entity uses the straight-line method, depreciation begins when the spare part is ready for use, that is, when the spare part becomes operational.. In our IFRS course we make an exhaustive analysis of IAS 16 with examples and practical cases, we also include the use of artificial intelligence applied to international financial reporting standards, if you want to be an expert ...
