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Stock (items to be sold for profit) vs capital assets

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    Stock (items to be sold for profit) vs capital assets

    Here is an example of a situation, the idea is the understand the difference between the two.

    So, let’s say a limited company running a service business, but It also sell products.

    I buy 4 medical equipment, 5000 each. and use one as capital asset in company but keep rest three in stock for sale.

    One is marked as capital asset in FreeAgent: It has 2 years life, marked as AIA and I can see the depreciate value per year in balance sheet.


    Now let’s move to marking the rest three three as stock:
    o The expense of the stock items, is it considered as balance sheet (capital cost) or profit and loss (revenue cost) item?
    o How does depreciation value work for them over years? Let’s say the stock items are not sold for three years.
    Last edited by kia2094; 25 October 2020, 23:43.

    #2
    What does your accountant say - as most people on here don't deal with stock and assets we sell our time and expertise
    merely at clientco for the entertainment

    Comment


      #3
      AFAICR (long time since I was a cost accountant) stock isn't capital and doesn't depreciate. What does happen is its market value may reduce over time (usually because better, newer things are available), or may increase (if it's something desirable like a Porsche GT2), until you either sell them, at which point they count as profit (or loss, if you're really unlucky) or are thrown away as useless. Meanwhile they sit on your balance sheet as potentially recoverable expense.
      Blog? What blog...?

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        #4
        They should be declared as assets as they have value they haven't been consumed. Normally you they should be classified as WIP (Work in progress). If the assets are not being used they wouldn't usually be depreciated, but you can revalue your WIP in the next acounting year.

        The key point is they should be on your balance sheet, and anything on the balance sheet should be valued according to their commercial value. Any reduction in their value goes into the P&L statement.
        I'm alright Jack

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          #5
          Debit - Stock at hand (Balance Sheet entry)
          Credit - Closing Stock (Cost of Sales - Income Statement)

          So it is both an asset, and a cost of sales item. Valuation is the market value at the financial year end.

          This entry is reversed in the new financial period and the new value at the end of that period is entered again, as above.

          You should ask your Accountant for advice, but make your own decisions.
          I was an IPSE Consultative Council Member, until the BoD abolished it. I am not an IPSE Member, since they have no longer have any relevance to me, as an IT Contractor. Read my lips...I recommend QDOS for ALL your Insurance requirements (Contact me for a referral code).

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            #6
            Of course - I forgot about periodic revaluation....
            Blog? What blog...?

            Comment


              #7
              Originally posted by BlasterBates View Post
              They should be declared as assets as they have value they haven't been consumed. Normally you they should be classified as WIP (Work in progress). If the assets are not being used they wouldn't usually be depreciated, but you can revalue your WIP in the next acounting year.

              The key point is they should be on your balance sheet, and anything on the balance sheet should be valued according to their commercial value. Any reduction in their value goes into the P&L statement.
              WIP is not used in a simple resale of stock.

              WIP is used when you using that stock for something else you are selling whether that's building a product (manufacturing or assembling) or completing a job.

              Comment


                #8
                Originally posted by jayn200 View Post
                WIP is not used in a simple resale of stock.

                WIP is used when you using that stock for something else you are selling whether that's building a product (manufacturing or assembling) or completing a job.
                It's all under inventory so for the balance sheet it doesn't matter.
                I'm alright Jack

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