Production manufacture units, parts, spare parts for rescue equipment
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- The road ahead
- How do you determine which repair parts are critical?
- Critical Spare Parts in Plant Maintenance
- How to Account for Spare Parts under IFRS
- 7 Things to Consider for Successful Spare Parts Management
- Global Network
- Aircraft Parts: Manufacturers
- Electrical spare parts management
- Zf Spare Parts
The road ahead
One of the biggest issues related to property, plant and equipment is accounting for spare parts, servicing equipment, stand-by equipment and similar items. IFRS standards are pretty silent about this topic, the guidance is very limited and as a result, companies need to rely on careful assessment of the situation and their judgment. The standard IAS 16 , paragraph 8 specifically says that spare parts are recognised in accordance with this IFRS when they meet the definition of property, plant and equipment thus they need to meet the definition of PPE.
If not, then spare parts might be considered PPE. Time aspect Do you need spare parts to operate some other asset during more than one period? Do you plan to use these items during more than 1 period? If not, then they are inventories.
Some spare parts are easy to classify, for example back-up engine with significant acquisition cost is a major spare part and thus accounted for as PPE. Some other items might not be that easy. Therefore, apart from the 2 criteria above, there are even more issues to consider:. Sometimes, you can have an asset that is used in the production process for more than 1 period, but its acquisition cost is very small.
And sometimes, you can have a huge amount of similar spare parts or servicing equipment. In this case, you need to assess materiality, or significance of similar spare parts and servicing equipment for your financial statements. And not only materiality on an individual, asset-by-asset level, but also materiality of the whole group of these assets.
Both options are possible, but the first one does not make much economical sense, as it would be difficult to keep records for 5 small assets. Special For You! Click here to check it out! Take oil refinery, for example. My limited knowledge about refineries tells me that refineries must contain some minimum quantity of oil to operate.
This oil must stay there until the plant ceases operations. And as strange as it might be, you need to account for a minimum level of oil as for PPE, and for the remaining oil as for inventories. After we learned how to classify an item as PPE or as inventories, the question is when and how to depreciate major spare parts that are classified as PPE. Depreciation of spare parts is not specifically addressed by the standards and therefore, we must apply our judgment.
IAS 16 in paragraph 55 only says that the depreciation should begin when an asset is available for use. Should you depreciate spare parts only when they actually replaced a defective part and are in operation? Or, should you depreciate spare parts once they are in the warehouse , regardless their actual usage?
In such a case, what is their useful life? If you keep the spare part to ensure smooth operation of some machinery without interruptions, then the depreciation period should start immediately. The reason is that such a critical spare part is available for use immediately when an original part in the machine stops working. However, if you keep the spare part to be used as a replacement part at some future time and you are sure that this part will be installed and put into use at a later date, then the depreciation should start when the part is installed.
You should carefully assess the nature of your spare parts, their function and future use and only then decide. Here, judgment is necessary. Thank you! Please leave this field empty. Check your inbox or spam folder now to confirm your subscription. Please check your inbox to confirm your subscription. That is a wonderful article on the very important topic!
I really liked it. And what about the depreciation methods for spare parts mentioned? I suspect they are to be the same as it was chosen for the related PPE.
Or not? And, obviously, something has to be written in the Accounting Policies? Also, the useful lives are the same or at least, they end at the same time. And of course, appropriate disclosures are needed. Thank you and have a nice day! Hi Silvia. I have a question. What will be the accounting treatment for the calculator? Is it going to be recognized as PPE or as an inventory? Is it on the basis of the effluxion of time? Thanks for this useful article. I just have a concern about minimum stock that you referred in your oil example that has to be kept for a longer period.
I would assume it refers to buffer stock but that will always be treated under IAS 2. It is not so clear how to deal with low-acquisition-price-long-live items depreciate, control, valuate.
I really enjoyed the example with screwdrivers! There are some problems with such items, however.. If we account a big amount of screwdrivers as a PPE item, so how to depreciate it? And how we should revalue it? Hi Sergey, sure, I got your point. As usual, there is some common sense and judgment to apply.
For example — how about performing the count of screwdrivers at the year-end, hm? I was always confused on this topic but atleast after reading this article I can handle It now. Thank you Sylvia. Very informative article. Consider the scenario of a Whole sale Dealer. Say this Whole sale dealer is a distributor of Chip and food stuff to Supermarkets. They have display stands which is provided to supermarket to display their product. Value of individual stand is low and collectively have medium material value.
This items Company can use more than for one or two year. But these stands not under the control of Company. Kept with supermarket and can be damage at any time. But company can take back stand at any time. So how to treat this kind of asset. I strongly consider this item should not be consider as PPE neither as Invedntorey. Dear Srinath, indeed, this depends on the careful assessment of the situation.
Auditors seemed to accept both treatments. Dear Silva, thanks for taking your time to educate and enlighten this generation in the area of your expertise. With regards to spare parts measurement and presentation in the financial statement, lets consider the aviation industry or better still aircraft industry where planes are used for charter per transportation and other logistics.
How do you measure and present spare parts use to service the aircraft own by the company and the spare parts use to service other aircraft own by third party. Note that all spare parts in this situation are stored in one and the same ware house.
Dear Joseph, I repeat myself again: assessment and judgement is needed. Thanks sylvia for helping everyone to learn ifrs. I have two question 1. Intially i held a particular spare parts to use in production process but later due to need i used in ppe, so i charge depn only when installed,so will it be a change in accounting policy but it was wholly unitentional?.
Thank you once again. J Hi sivya My concern about spare parts which is for replacement You said should be depreciated right away in the stores that mean could be deprecisted before being installed Am i right. Jumaa, it depends on what kind of spare part it is.
Sylvia, Thank you so much. You have really made this simple for even a layman. After recognize the minimal quantity of Oil as PPE, will you depreciate it later on or how to deal with itafter? Dear Amr, sorry for my poor industry knowledge, but let me ask maybe stupid questions: will you keep the same oil there? Of course it can have some residual value for which you would sell it , so you need to take this into account.
Dear Silvia, it is interesting how to allocate cost on such volume if it is internally produced. It happens at the beginning of production. In oil industry there are no big raw material cost but mostly overheads. At the beginning of production due to small production volume, cost per barrel could be significant in comparison to market price.
Thanks a lot, Silvia! Hi Silvia, Thank you for this article. For me it is so timely as I am currently dealing with a similar issue.
How do you determine which repair parts are critical?
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Critical Spare Parts in Plant Maintenance
For many industrial manufacturers, what was once a clear path to success is now fraught with uncertainty. Making equipment for a wide array of industrial activities — such as big construction projects, large industrial facilities, oil and gas fields, and refineries — has for years been difficult to navigate, but major companies often used their size to sidestep obstacles. The strength of having multiple product lines covering the full gamut of industrial operations frequently allowed industrial manufacturers to eke out profits from some segment of their customer base even as slowdowns imperiled other sectors. But juggling business in this way is no longer a viable strategy, particularly if a company relies on traditional machinery for its revenue streams, as many industrial manufacturers do. Customers increasingly seek improved efficiency and production transparency from connected technologies and digitization. Their loyalty to companies that fail to offer innovative products is waning. Equally important, the inherent advantages of large, diversified organizations — such as lower cost of capital and sophisticated talent development and recruitment programs — are diminishing as capital market efficiency improves lending outcomes for all participants and increasing information transparency provides windows into attractive new jobs across the corporate landscape for the best prospective workers. A significant portion of new sales growth for industrial equipment manufacturers will come from connected equipment with sensors, actuators, and analytical insights that can exchange critical data with other machines and computer networks. Twitter LinkedIn. These trends have been slowly emerging over the past few years, but the pace has quickened for digitized devices particularly.
How to Account for Spare Parts under IFRS
Practical spare part management is the foundation for reliable plant operation and is crucial to a plant managers success. As plant manager, you need to know how to determine which spare parts are needed to make up an effective and comprehensive inventory system. Taking these factors into account can help minimize performance disruption, promote efficiency, and reduce carrying cost. Ultimately, producing successful spare part management.
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7 Things to Consider for Successful Spare Parts Management
Quality levels are discussed and agreed upon upfront. As a trusted partner with clear processes, we deliver on our promises. Our extensive and in-depth knowledge of both Stork-original as well as third-party equipment, also allows us to re-engineer and manufacture critical spare parts with the shortest lead time possible and thereby keep your assets running. Stork's subsidiary EQIN is the specialist in industrial equipment, tools and consumables rental, sales and training in the Benelux.
A spare part , spare , service part , repair part , or replacement part , is an interchangeable part that is kept in an inventory and used for the repair or replacement of failed units. Spare parts are an important feature of logistics engineering and supply chain management , often comprising dedicated spare parts management systems. Capital spares are spare parts which, although acknowledged to have a long life or a small chance of failure , would cause a long shutdown of equipment because it would take a long time to get a replacement for them. Spare parts are an outgrowth of the industrial development of interchangeable parts and mass production. In logistics , spare parts can be broadly classified into two groups, repairables and consumables. Economically, there is a tradeoff between the cost of ordering a replacement part and the cost of repairing a failed part.
Machinery companies come in forms as varied as the equipment they manufacture. Just as equipment prices range from thousands to millions of dollars, companies vary from large business conglomerates to highly specialized niche companies. What most have in common is that they generate substantial value from after-sales services. There is no one strategy for machinery companies to generate value from services. The best way to create and maximize value varies according to equipment characteristics, competitive environment, and regulatory conditions. Some companies extract most of their service value from selling spare parts. Others focus on maintenance or diversify into the processes for which their machinery is used. Every day, machinery companies are extending their service portfolios with more innovative and customer-oriented offers.
The changing manufacturing environment requires more responsive and adaptable manufacturing systems. Leading edge research and best implementation practices and experiences, which address these important issues and challenges, are presented. The proceedings include advances in manufacturing systems design, planning, evaluation, control and evolving paradigms such as mass customization, personalization, changeability, re-configurability and flexibility. Enablers of change in manufacturing systems, production volume and capability scalability and managing the volatility of markets, competition among global enterprises and the increasing complexity of products, manufacturing systems and management strategies are discussed. Industry challenges and future directions for research and development needed to help both practitioners and academicians are presented.
Aircraft Parts: Manufacturers
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Electrical spare parts management
If you do not have that critical spare part when you need it, you may be in big trouble. On the other hand, it is impossible to keep an extra factory in the storeroom. We do not know what the future will bring, but there is an analytical way to minimize the expected costs. Use this form to calculate the costs whether or not you buy and keep the critical spares.
К ней как-то не шло сквернословие - как неуместны сточные воды в хрустальном графине. Но, приглядевшись, он убедился, что она вовсе не такая изысканная особа, как ему показалось вначале. Веки припухли, глаза красные, левая рука у локтя - вся в кровоподтеках с синеватым отливом.
Господи Иисусе, - подумал. - Наркотики внутривенно.
Zf Spare Parts
Он был принят сегодня утром. Его карточка должна лежать где-то сверху. Беккер еще больше усилил акцент, но так, чтобы собеседница могла понять, что ему нужно, и говорил слегка сбивчиво, подчеркивая свою крайнюю озабоченность.
Люди часто нарушают правила, когда сталкиваются с подобной настойчивостью. Но вместо того чтобы нарушить правила, женщина выругала самоуверенного североамериканца и отсоединилась. Расстроенный, Беккер повесил трубку.
Джабба схватил калькулятор и начал нажимать кнопки. - А что это за звездочка? - спросила Сьюзан. - После цифр стоит какая-то звездочка. Джабба ее не слушал, остервенело нажимая на кнопки.