ipcc-a/c-doubt-pls help

Page no : 2

Jasmin (student) (185 Points)
Replied 30 December 2009

Nithesh,

if plates & glasses r treated as current assets, then y is dep charged on them??

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(Guest)

As per AS-2, The text is:

Inventories are assets:

(a) held for sale in the ordinary course of business;

(b) in the process of production for such sale; or

the production process or in the rendering of services.

So in case of plates and glasses of the mentioned hotel,the points (a) and (b) are not applicable. Seeing the point (C) glass and cutlery will not be used as raw materials to give WIP or Finished goods of cutlery. Similarly it cant constitute for service and be transferred to trading A/c as the info given is that the assets are used to derive benifit for a longer period(dep. provided in question) so they have considered as FA and they want to allocate the cost in different years as per matching concept.

(Guest)

And moreover looking outwardly it appears that hotel provides service But in reality if u analyse it is engaged in production process. i.e preparing food items, drinks etc... No doubt that cutlery are assets , they are fixed assets as they help in production process for a longer period.

Sandeep Pandey (CA FINAL) (1306 Points)
Replied 31 December 2009

i AGREE SHAILESH.............................

Chirantan (Partner) (34 Points)
Replied 09 August 2011

Dear Jasmine, as a matter of fact we have a client who is into hotel business. The issue in your case that depreciation is being charged on curtlery etc is basically not depreciation but in the nature of depreciation (write off). The client in our case charges 15% write off on those materials of inventory. Thus what Sailesh Ghase has said is correct.