- This topic has 7 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Replacement parts of PPE
Spare parts(small) and servicing equipment are usually treated as inventory(materiality) and recognised in the P&L as and when consumed
Isn’t this means that the spare part bought and recognised as inventory and the double entry would as follows:
Debit inventory
Credit CashAnd when the spare part is used to replace minor part of the PPE, this would be recorded
Debit Expenses (P&L)
Credit Inventoryam I true?
In UK bookkeeping it’s not normal to have an account called “inventory”. Instead we have “Purchases Account”
so the double entry that you’re looking for would be:
Dr Purchases
Cr CashIf, at the end of the accounting period, the item has not been used up as a repair for an asset then it would be included within the physical count and valuation of inventory
Is that clear for you?
Yes , one more thing is that when in the next accounting period, the item would be used to replace minor part of asset and so
Debit Expenses( P&L)
Credit InventoryRight?
Er….no! I’ve just explained that we don’t have an account for “Inventory” as such. The item used in the next accounting period will have been part of last year’s closing inventory and that figure is clearly the same as this year’s opening inventory so it will be included in this year’s cost of sales figure (calculated as “opening inventory plus purchases less closing inventory”)
As you can maybe see, the actual use of that spare part is not accounted for by any double entry – it simply isn’t included in this year’s closing inventory
OK?
Correct! It was in last year’s purchases and also in closing inventory. So it is NOT included in last year’s cost of sales (added in as a purchase and then deducted as part of closing inventory)
This year it IS included in cost of sales (added in as part of opening inventory)
So the cost of the spare part that was possibly actually paid for last year is deferred until this year ie the year in which it is used as a spare part in the repair or maintenance of an asset
- You must be logged in to reply to this topic.