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Accounting treatment of cylinders used in printing press

jyotsna roy (N.A) (28 Points)

30 August 2013

The case is as follows:

A printing press is in the business of printing the formula and other details on medicine packing (aluminium foil). Now, they are using different cylinders (similar to printer cartridges) for different medicines. Each cylinder has formula embossed on it for specific medicine. Suppose they have to print for Medicine A, they will use the corresponding cylinder say, Cylinder A. This Cylinder A will be used every time they are receiving an order for Medicine A.

These cylinders cannot be used for any other purpose and hence, cannot be resold in the normal market. At the most, they can be scrapped.

Now, my question is:

a) How do we classify these cylinders- Fixed Assets or Inventory?

b) What will be the basis of valuation of these cylinders?

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4 Replies

CA. Nishant Jain (Audit Executive) (411 Points)
Replied 31 August 2013

Dear Jyotsna,

With reference to your query, as per Accounting Standard - 10 : Accounting For Fixed Assets, Fixed Asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.

Further, Machinery Spare which are specific to a particular item of Fixed Asset, i.e, they can be used only in connection with a particular item of the fixed asset and there use is expected to be irregular, are to be capitalised.

So, accordingly the Cylinder involved in the query, in light of above explanation is to be capitalised at the cost at which the same is purchased or manufactured.

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jyotsna roy (N.A) (28 Points)
Replied 31 August 2013

Thanks Nishant!

However, as per As-2 para4:" Inventory also encompass FG produced & WIP being produced by the enterprise and also include materials, supplies,consumables and loose tools awaiting use in the production process."

Also, I may mention here that these cylinders are used regularly and have definitely shorter life than the machinery. Their life basically depends on the level consumption. As a result, it is directly dependent on the number of orders. As per my understanding, they should be treated as consumables because in a way they are direct cost to the enterprise.

Please reconsider and give your opinion.

CA. Nishant Jain (Audit Executive) (411 Points)
Replied 01 September 2013

Dear Jyotsna,

The cylinder in the query is similar to stencil or dyes used in textile printing and these are tools needed for a particular design / printing. Therefore the same cannot be termed as inventories. Moreover here the concept of Materiality will play a major role. If cost involved is material the same should be capitalised otherwise it should be settled by charging the same to revenue.

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riten doshi (2 Points)
Replied 08 April 2024

Originally posted by : CA. Nishant Jain
	Dear Jyotsna, With reference to your query, as per Accounting Standard - 10 : Accounting For Fixed Assets, Fixed Asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. Further, Machinery Spare which are specific to a particular item of Fixed Asset, i.e, they can be used only in connection with a particular item of the fixed asset and there use is expected to be irregular, are to be capitalised. So, accordingly the Cylinder involved in the query, in light of above explanation is to be capitalised at the cost at which the same is purchased or manufactured.