printing Plates cost

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Permalink Reply by Werner Reisacher on February 9, 2010 at 10:31am

It all depends of what "printing plates" are used for in your buisiness and what their values are.
If our are trading in printing plates, (buying an selling), you would treat them as merchandise inventory items.
If these plates become an integrated part of your printing equipment, used in the printing process and exposed to wear and tear, they could be treated as production inventory such as spare parts, molds, machine tools.
Depreciation would be based on the "usage method" i.e.( # of hours or days in production). Exception to this rule would be if they are considered as "low value items" and could be as such written off directly against your production cost at the time they are put into production.
The only time you would treat them as Fixed Assets is when they represent a major part of the machine, be of high value and effectively increase the economic life of the fixed assets. (such as a new engine for a truck) In such a case, you would add their value to the asset value of the printing machine and estimate the new expected econcomic life of the refurbished machine and calculate the future depreciation accordingly.

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Permalink Reply by aakhan on February 9, 2010 at 1:16pm

thanks for such a detail answer, but some time we do not know how much revenue will be expected through these printing plates for example revised edition of a book as same as previous throug previous printing plates after two years what will be the recommended practice depreciation or amortization for printing plates.

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Permalink Reply by Werner Reisacher on February 10, 2010 at 3:42pm

I understand your question much better now. In this situation, there are two accounting prinicples you should consider. The first is "depreciation on the basis of activity" rather then time. The second is the "Conservative Accounting Principle". (both are under FASB)
Depreciating on the basis of the activity would mean that you depreciate the full value of the printing plates and add these costs to the production cost of the first edition of the book.
The Conservative Accounting Principle comes into play when you have to decide about the probability of using the same printing plate again for the production of a second editon of the same book. Unless you have very good reasons to believe that the printing plate will be used again, the Conservative Accounting Principle would require that you be cautious and depreciate the value of the plates during the first run and not run the risk of having to depreciate eventually part of the value of the plates at a time when no more economic value will be generated.
I hope that clears you quesiton.
As much as we would like to believe, accounting decisions are not always black or white. Applying good judgement is as close as we can get to the truth.
Werner Reisacher

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Permalink Reply by aakhan on February 10, 2010 at 11:40pm

that is the answer i need thanks a lot,

a.akhan

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