Spare Parts Case Study

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Spare Parts Introduction Spare parts should be assessed carefully in respect to their nature, their functions and their future use. Failure to do this, it would lead to a company experiencing significant losses. For example, a company that is responsible for maintenance of a solar power unit needs to assess the nature and use of the spare parts for profit maximization. There has been a discussion as to whether spare parts should be classified as property assets or inventories and this has led to many critical mistakes being made by many companies. Another issue is whether regarding how they should depreciate (Teixeira, Lopes & Figueiredo, 2017). This point of depreciation is determined by the decision made in classifying the spare parts. For …show more content…

These aspects include purpose. Spare parts that are depleted in the process of production or held to be resold are classified as inventories. The time these spare parts are used is another aspect (Minner, 2014). When spare parts are used only once or used in just one period should also be classified as inventories, and those used for more than once should be current assets. However, if the materiality of the spare parts is too small, it would be hard to classify them as inventories because it would be hard to count and keep a record of each asset at a time. These kinds of assets include screwdrivers among many others (Walter, 2015). If these items are in large quantities say thousands of screwdrivers, then they should be classified as …show more content…

The spare parts that are purchased and hold with the aim of maintaining a smooth running of the machines should start depreciating immediately after purchase. But a spare part stored to be used to replace another part in future should begin depreciating after being installed (Birkholz, 2013). Analysis of the facts Most of the spare parts in solar power plant will be used in the production. By getting used, I mean that the spare parts can never be used again in that similar operation. They will ensure proper output of power in this plant. Therefore, they should be classified as inventories. Moreover, these spare parts can only be used over one period. Once they become absolute, they cannot be reused (Walter, 2015). This makes them meet all the qualifications of a spare part to be classified as inventory. Once a piece is installed, it will be removed at a time where its use has been depleted. The spare parts in the solar plant should start depreciating immediately vendors deliver them to the company. The reason for this argument is because, when a solar plant starts working, it would not be advisable to stop the production and wait for delivery of a spare part these parts are purchased to ensure smooth and continuous running of the

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