We purchase spares for machinery which have a life of more than a year say 2 or 3. The cost is very high. So we are planning to write off the cost of spare over a period of 2 or 3 years. Note the same is not a inventory as the same is put to use immediately.
Whether such accounting policy is proper? Is there any risk implication?
04 June 2012
Stores that are of capital in nature are to be capitalised and depreciated as plant & machinery.
Excerpt from ASI 2 - Accounting for Machinery Spares
4. Machinery spares of the nature of capital spares/insurance spares should be capitalised separately at the time of their purchase whether procured at the time of purchase of the fixed asset concerned or subsequently. The total cost of such capital spares/insurance spares should be allocated on a systematic basis over a period not exceeding the useful life of the principal item, i.e., the fixed asset to which they relate.
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