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Accounting entries

11 February 2010

Dear all,

We are newly started Hotel business, in that we purchasing steel items like Plates, glasses etc under which account it will come and also which group.....

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18 Replies

Sushmita (Finance Officer) (142 Points)
Replied 11 February 2010

It will come under inventory group under "cutlery" head.

1 Like

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CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27191 Points)
Replied 11 February 2010

I Reached to Two points

That Are: -

(1) I Think This Should Be Covered Under Inventory in Use as preliminary Expenses & Therefore 1/5th Shold B Claimed As Expenses In 5 Years.

(2) This Should Be Come Under Kitchen Appliances Under Fixed Assets & 10% Depreciation May B Claimed Under Income Tax Act of Fixtures Block.

***I Think U May Choose Any Option From As Above.

3 Like

praveen (Chartered Accountant) (6971 Points)
Replied 11 February 2010

Originally posted by : AYUSH AGRAWAL
	I Reached to Two points That Are: - I Think This Should Be Covered Under Inventory in Use as preliminary Expenses & Therefore 1/5th Shold B Claimed As Expenses In 5 Years. This Should Be Come Under Kitchen Appliances Under Fixed Assets & 10% Depreciation May B Claimed Under Income Tax Act of Fixtures Block. I Think U May Choose Any Option From As Above.

agreed boss

1 Like

sudhir rawal (B.COM/PCC/ARTICLE/'O'LEVEL) (314 Points)
Replied 11 February 2010

you are having newly started business and items which you are purchased is helping in your business you it depends upon your materiality of your stock

like if your purchasing is in heavy quantity and you want to make an account for it then it would be come in one head like "business running items" and plates and what ever you had purchased

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Hemant Ramrakhyani (Senior Accounts manager) (22 Points)
Replied 12 February 2010

All these cuttelery items are consumables for the hotel, so these are required to be debited in consumables and are charged totally in the same year of purchase. Although bills relating to last quarter can be inventorised to some extent depending upon the dates on which they are purchased. for eg. if cuttelery is purchased on 31st of march charging the whole amount in the same year will not be appropriate & therefore a proportion can be inventorised and the rest can be charged in the same year of purchase.

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CA Rahul Khatter (Chartered accountant) (97 Points)
Replied 12 February 2010

i thnk so these type of expenditures are revenue in nature and should be debited to respective account.......

and u can also says tht its a preliminary expenditure........

so as per it act 1961 should be utilised in 5 equal annual installements

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CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 12 February 2010

utensils r not inventory.... its a fixed asset in case of a hotel.. so i KITCHEN UTENSIL account is to be created under the head of FIXED ASSETS....

1 Like

Chintan Vasa (CA Final Student M.Com) (1241 Points)
Replied 12 February 2010

I think that it should be classfied under fixed asset under the head cutlery or kitchen items or whatever name is appropriate.

Howver they are not consumables. Consumables are such things which are destroyed or lets say are used up in a process & lose their identity. Here the kitchen items remain intact & dont lose their separate identity.

Also it is not a revenue expenditure as the benefit from such items shall be for more then a year.

Hence it should be classified under "Fixed Assets"

1 Like

saranraj (CA FINAL) (419 Points)
Replied 12 February 2010

Dear Friends,

I have seen audits of many star hotels in Chennai. Cutleries and utensils has to be treated as INVENTORY and not FIXED ASSET. The contention of yours that the life of such utensils is more than one years is not practically possible. They will last for just 5 or 6 months.

Warm regards

R.Saranraj B.Com, IDA

1 Like

saranraj (CA FINAL) (419 Points)
Replied 12 February 2010

Ms. Sushmitha is 100% right...

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jitendra jain (delhi) (80 Points)
Replied 12 February 2010

I think that it should be classied under fixed asset under the head cutlery or kitchen items or whatever name is appropriate.

(Guest)

Pals .. cutlery items are to be capitalized. Check out this balance sheet to confirm www.orchidhotel.com/mumbai_hotels/balance.pdf

As noted by sushmita it will be shown as 'cutlery item' but not under inventory.

Further u can also refer AS-2 for definition of inventory.

Chintan Vasa (CA Final Student M.Com) (1241 Points)
Replied 12 February 2010

Originally posted by : saranraj
	The contention of yours that the life of such utensils is more than one years is not practically possible. They will last for just 5 or 6 months. Warm regards R.Saranraj B.Com, IDA

(I) As per Accounting Standard 2 : Valuation of Inventories:

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.

The kitchen items are:

(i) not held for sale in the ordinary course of business;

(ii) not in the process of production for such sale; or

(iii) not in the form of materials or supplies to be consumed in the production process or in the rendering of services. (Kitchen items are not consumables as explained in my previous post.)

From above its clearly visible that non of the criterias are fulfilled for kitchen items to fall under inventories. Hence there is no doubt that kitchen items are fixed assets & should be classified in an appropriate head.

(II) Regarding useful life of utensils, practically their life is more then 1 year. Such items dont get extinguished like consumables.

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CA Ankit Totla (Practicing Chartered Accountant) (469 Points)
Replied 12 February 2010

Originally posted by : sHaiBu
	Pals .. cutlery items are to be capitalized. Check out this balance sheet to confirm www.orchidhotel.com/mumbai_hotels/balance.pdf As noted by sushmita it will be shown as 'cutlery item' but not under inventory. Further u can also refer AS-2 for definition of inventory.

Shaibu,

but here the curtlery reffers to mettalic utensils, which lasts untill they r scrapped.... which means tht they last much much more thn 5-6 months...!!!!