All Member Open Forum

Greetings all

I would like to reach out to the community to understand how spare parts are treated financially in different organizations.  I am approaching this from the context of a consumer goods manufacturer that has spare parts inventory for its production equipment.

In general, spare parts can be treated as a fixed asset (property, plant and equipment) or current asset (working capital or inventory).

If spare parts are defined as current assets or inventory, they need to be consumed within 1 year of purchase to meet the definition of a current asset.  However, we currently have spare parts that don't move every year but are required as safety stock e.g. PLC cards, large motors etc.  This makes classifying them as current asset/inventory difficult from a financial point of view as the inventory is not consumed in 1 year.

If we define spare parts as a fixed asset (property, plant and equipment) then we will have tens of thousands of individuals items as assets in our balance sheet/asset register.  Moreover, how would the MRP system work when a consumed part that needs replenishment needs to be expensed against a capital budget?

My questions to the community are:

·       - How do you treat spare parts in your organization i.e inventory or fixed asset

·      -  How do you address some of the issues I highlighted above in your organization

·       - Is there any other way (say hybrid approach) that folks are using to account for their spare parts

I would greatly appreciate your insights.

Sangeev

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Sangeev Parbhu
London ON
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It is a normal practice world wide that during detailed engineering spares of all asset identified and procured so that plant may run reliable with those spares available when needed either within 01 year or 02 year time period.

The financial aspect to neglect spare coming during project phase is one example, means plant owners keep those spare as zero value and classify them as project spare in CMMS.

Which donot impact the overal asset value since the cost was paid earlier already under that project phase.

Thanks,

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Muhammad Yaseen
Saudi Arabia
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I would suggest theses guidelines for spare parts inventory stocks
1) Health, Safety and Environmental impact
2) Critical and non critical
3) Frequency of replacement
4) Timely Availability from Manufacturer or Supplier rather than storing in-house

Respectfully Yours
Mr. Kuarlal Rampersad, “VA,PE,CLS,OMA,CMRP”
Chairman, SMRP Trinidad Caribbean Chapter
Phone: 1(868)683-3259
Email: ramperk@live.com

I would suggest theses guidelines for spare parts inventory stocks
1) Health, Safety and Environmental impact
2) Critical and non critical
3) Frequency of replacement
4) Timely Availability from Manufacturer or Supplier rather than storing in-house

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Kuarlal Rampersad
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