Repairing of inventory

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Khurram Shahzad

Accountant

40 Points Joined December 2011

Hi Guy's

I'm a student of CA and also doing a job as an accountant as well. I need some information regarding inventory repairing . let me explain my question with the help of an example.

Suppose XYZ Company engaged in the business of Cell Phone and Electronics Product .Company Purchased inventory amounting Rs. 200,000 (8 Cell phones) for reselling . Company Paid Rs. 5,000 for repairing of these phones . My question is :

1- Do I need to record Rs. 5,000 as an expense ?

2- Do I need to record Cost of Good Sold ?

An early response would be highly appreciated

Thanks

Khurram

Replies (10)

ANKUR TAH

Teacher Consultant and CA finalist.

543 Points Joined February 2014

the co form to purchase 2nd hand phone and after repair or adding extra feature it will sell to open market.
So here repair cost or extra feature adding cost is a part of the total cost you can say manufacturing cost.
You can not say it is an expenses, exp is like business running expenditure.

Khurram Shahzad

Accountant

40 Points Joined December 2011

Dear Mr.Ankur Tah,

Thanks for replying,

I agree with your opinion and could you please guide me how to allocate the cost to those units against repair charges paid .

Thanks

ANKUR TAH

Teacher Consultant and CA finalist.

543 Points Joined February 2014

Its very simple, you just treat 2nd mobile as purchase of raw material.
And extra parts treat as spare parts
And remuneration to employees treat as wages.

Khurram Shahzad

Accountant

40 Points Joined December 2011

Dear , Company purchased brand new items but sometimes some Cell Phone are faulty OR become faulty after some period .Company Purchased the item in the system as finished goods . I think I should record General Entry against Repair charges

Cost of Repairing A/c (cost A/c) Dr.

Cash / Bank A/c Cr.

In this way , the payment made against repair transfer to CGS but it would not increase the value of the inventory .

What do you suggest ?

Thanks

ANKUR TAH

Teacher Consultant and CA finalist.

543 Points Joined February 2014

ooohoo.
you don't need to increase your inventory value, because

ANKUR TAH

Teacher Consultant and CA finalist.

543 Points Joined February 2014

Because, those finish product is not your main business object.
If you see there is a huge volume of 2nd hand phone, then you can follow inventory practice.

ANKUR TAH

Teacher Consultant and CA finalist.

543 Points Joined February 2014

And accounting entry is correct if you followed without inventory procedure.
Otherwise cost of repair have to charge on 2nd hand phone by Dr 2nd hand phone to Cr cost of repair