22 February 2016
I have a doubt on inventory. Here the company (a palm oil plantation) is capitalizing stationaries(catridge, toner, papers etc), fuel for vehicles used for administrative purposes, electrical & other construction materials for building staff quarters, rice for staff etc. These items are in bulk quantity and they expense it when they use it. Is it the correct treatment or they should expense it on purchase?
23 February 2016
The rule & concept is one but there are different ways to doing accounting and inventory control and its basically depends on the nature & transactions of the business.
But I didnt understand why they are capitalizing all these, is the plant is in project stage??
Still the best option is to book these purchases under Store & Consumable purchases (under Purchase A/c) and then on the basis of consumptions details given by the store dept. these can be either capitalized or expensed out.
Further for better clarity different sub-ledgers can be opened under Store & Consumable Group : - Like, Mechanical purchases, Building material purchase, printing & stationery purchases, Electrical goods purchases, etc....
23 February 2016
Capitalizing in the sense treating it as a balance sheet item (as inventory) instead of expenses. These company use IFRS. So as per IAS 2, The following terms are used in this Standard with the meanings specified: Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. So can we consider this items as inventory. What AS 2 says?
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