Spare Parts

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 a solar power plant maintenance company, its spare parts can be classified as inventory. Researchers and business people say that almost all spare parts are inventories. In our case, I would encourage classifying of our spare parts as inventories which will lead to the issue of depreciating of the parts (Wongmongkolrit, Rassameethes & Laohakul, 2016). Since the spare parts are stored in a warehouse for an emergency case of failure of other parts, then the spare parts should start depreciating while still in the store.

Analysis

Description of the facts

There are different facts to be considered when classifying and determining depreciation of spare parts. 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 inventories.

When it comes to the depreciation of these spare parts, it brings too much contradiction and discussions. 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 plant.

Conclusion

The topic of classifying spares has been confusing and contradicting. This calls for more research and expounding of the steps used in categorizing them. However, using the natural means, we classify spare parts of a solar power plant as inventories since they fit in most of their descriptions and they should start depreciating immediately they are purchased.

References

Birkholz, E. P. (2013). Inventory and Exposure of Corporate Assets. Special Ops, 21-48. doi:10.1016/b978-193183669-2/50028-6

Minner, S. (2014). Forecasting and Inventory Management for Spare Parts: An Installed Base Approach. Service Parts Management, 157-169. doi:10.1007/978-0-85729-039-7_8

Teixeira, C., Lopes, I., & Figueiredo, M. (2017). Multi-criteria Classification for Spare Parts Management: A Case Study. Procedia Manufacturing, 11, 1560-1567. doi:10.1016/j.promfg.2017.07.295

Walter, E. (2015). Core sampling system spare parts assessment. doi:10.2172/44331

Wongmongkolrit, S., Rassameethes, B., & Laohakul, K. (2016). The Classification of Criticality for Spare Parts by Applying the Ratio of Production Lost Cost to Spare Parts Inventory Cost. British Journal of Applied Science & Technology, 13(3), 1-9. doi:10.9734/bjast/2016/22097

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