Finished Goods or Fixed Asset??

Mazza
Mazza Registered Posts: 14 New contributor 🐸
in General discussion
***Double post because I think I put this question in the wrong discussion area first time round***

Hi everyone,

Apologies if this seems like a silly question but I was hoping someone could give me some guidance.

The company I work for manufactured a display kitchen to use in the Grand Designs Show. We have the display now fitted into our reception area.

Our accountant advised us to treat it as finished goods. I was hoping that someone could advise me if this is the correct way to treat it?

I'm not trying to disprove my accountant or anything like that but my thinking is that the display should be treated as a fixed asset and depreciated over it's 2 year lifespan (it cost over £15000 to make).

I suggested this to my boss who said we would need an invoice for it to be treated as an asset????

I think the factor that is throwing me a little is that we manufactured the display ourselves, does this make a difference? Afterall an improvement to a building (using employees as labour) would be treated as capital expenditure wouldn't it?

Sorry again if this sounds dumb!

Thank you in advance.

Comments

  • PGM
    PGM Registered Posts: 1,954 Beyond epic contributor 🧙‍♂️
    You don't need an invoice for it to be capital. You always need to be able to prove costs, but in this case it will be materials and labour through the payroll. Helps if your timesheets are detailed enough or else it will need some other records to help justify the time spent on it.

    Its only 2 years but at a cost of 15k its worth capitalising as that will likely span 3 financial years!
  • Mazza
    Mazza Registered Posts: 14 New contributor 🐸
    Thank you for your help, much appreciated.

    Marie x
  • RyanW
    RyanW Registered Posts: 19 New contributor 🐸
    Capital exp, unless it's part of your manufacture to sell as a product, it would then be a finished good, i.e cost of sale
  • Andy Blyth
    Andy Blyth Registered Posts: 48 Regular contributor ⭐
    Ryan is spot on here. The distinction is not whether you have an invoice, but whether the goods are held for re-sale or held for the long-term (>1yr) use of the business.

    In this case, there seems to be no intention of resale and so holding it in stocks would be incorrect.

    As you suggested, it should be capitalised (probably in fixtures and fittings) and depreciated over its useful life.

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