Capitalize unconsumed office supplies?

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pub_acco
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Re: Capitalize unconsumed office supplies?

Post by pub_acco » 31 Jul 2020, 14:10

Technically, we can use a good pen for more than one year but I can hardly imagine a situation we capitalize office supplies under IAS 16 :roll: Anyway, now I understand the standards are not clear and there are variations of practices. And, that's not a problem at all because office supplies are immaterial in 99% of cases.

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Marek Muc
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Re: Capitalize unconsumed office supplies?

Post by Marek Muc » 01 Aug 2020, 09:28

The publication by KPMG is in Japanese, would you mind copying the relevant wording to google translate and pasting here the English version?

pub_acco
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Re: Capitalize unconsumed office supplies?

Post by pub_acco » 01 Aug 2020, 10:44

Page 22. Wasn't aware the pdf was protected.

IFRS
棚卸資産の範囲 (IAS 2.6(c), 16、IAS 16.8、IAS 38.69)
Scope of inventories

販売活動及び一般管理活動において短期的に消費される事務用消耗品等の取扱い
Treatment of office consumables, etc. consumed in the short term through selling, general and administrative activities

基準上、取扱いが明記されていないため、「生産過程またはサービスの提供にあたって消費される原材料または貯蔵品」に該当するか否かで判断する
Since the standard is not explicit on the treatment, judgement is needed based on whether they are "materials or supplies to be consumed in the production process or in the rendering of services"

J-GAAP
(基準9号3項)
(Standard 9.3)

棚卸資産には、売却を予定しない資産であっても、販売活動及び一般管理活動において短期間に消費される事務用消耗品等も含まれる
Inventories include office consumables, etc. consumed in the short term through selling, general and administrative activities even if they are not the assets for sale

Translation by me ;)

jonyicheng
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Re: Capitalize unconsumed office supplies?

Post by jonyicheng » 02 Aug 2020, 19:52

Office supplies are not inventories unless you are in the business of selling office supplies. They should be, strictly, in scope under IAS 16 but generally are of low value and are expensed as purchased. Low value capitalisation threshold is not determined explicitly by the Standard but as Auditors we usually benchmark this against materiality.

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JRSB
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Re: Capitalize unconsumed office supplies?

Post by JRSB » 03 Aug 2020, 13:55

Inventory also includes inputs to the value production process in the ordinary course of business - you don't have to be selling the product that you hold as inventory
"I am always ready to learn although I do not always like being taught" - Churchill

pub_acco
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Re: Capitalize unconsumed office supplies?

Post by pub_acco » 03 Aug 2020, 15:13

I agree inventories don’t need to be sold, but I’m not really sure if "consumed in the production process or in the rendering of services" as in IAS 2.6 can be interpreted that broadly. At least, IAS 38.69 explicitly excludes supplies for research, advertising, promotions, and so on from the scope of inventories.

jonyicheng, do you know any grounds for "expensed as purchased"? Office supplies covered by IAS 2 are expensed when consumed, and those used for more than one year and thus covered by IAS 16 are expensed systematically based on the pattern of consumption (ie depreciation), whereas those covered by IAS 38 are expensed when purchased. The treatment of the office supplies that are not covered by any of the above is in question. Expensed when consumed or when purchased?

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Marek Muc
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Re: Capitalize unconsumed office supplies?

Post by Marek Muc » 03 Aug 2020, 15:59

I personally changed my mind after our discussion and I now agree that office supplies are in fact out of scope of IAS 2. In my opinion, if they don't fall under the scope of IAS 16 (i.e. won't be used for more than 1 year), they are not specifically covered by IFRS. So entities need to develop your own accounting policy, and the best reference to do so is IAS 2 :) Therefore I would account for office supplies in the exact same way as inventories under IAS 2. Of course, majority of office supplies is immaterial and thus they can be expensed when received

pub_acco
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Re: Capitalize unconsumed office supplies?

Post by pub_acco » 05 Aug 2020, 11:28

That’s a great recap of the discussion. I would totally agree to your opinion ;)

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