Greetings! I’m a small business owner, we create and sell skin care products in the USA, and I’m hoping someone can help clarify some accounting questions with regards to various assets (at least I believe they are treated as assets but I could be wrong).
There are a few different types of assets and it’s not clear to me how these are treated, if they are treated differently, and how long we depreciate them if at all.
Our jars have special screw caps that required a mold to fabricate. The manufacturer of the mold (in China) guaranteed us that we would have exclusive rights to use the mold. The mold cost us nearly $6,000 to create. Is this a depreciable asset? We do not have physical control of the mold and if we requested the mold be transferred to us, we would likely meet resistance from the factory.
Our jars and bottles are hot-stamped with our logo. This hot-stamping required special tooling to be created, but only one time. The tooling cost over $1,000. Is this a depreciable asset? Again, we do not control this tooling, it is controlled by a company in France.
When we purchase glass jars (which will eventually contain our creams and so forth) we are required to purchase 10,000 units at a time. We do not sell through these jars in one year. Are they assets? How do we carry these product components on our books?
When we place our product in a store, they are displayed inside special display units that we provide. These displays cost more than $500 per unit. Are these depreciable assets? We retain ownership of the display units, they are not sold to the store.
Thank you for any help. We only recently began making relatively large purchases as we’ve grown, so we aren’t accustomed to thinking about things as assets. In the past we would order only a few units of glass or what-have-you and sell through it quickly, and the other items (mold, tooling, etc) were also recent purchases.
These questions have nothing to do with the Manager application. You should ask them of a qualified accountant. There are many factors that could influence how you categorize assets and inventory.
With regards to 1 - The mould cost us nearly $6,000 to create. Is this a depreciable asset?
If you designed the mould and provided it to the manufacturer, then it would be your intellectual property, so your intangible asset which can be amortised (depreciated). The test here is - can you sell the mould designed to another. However, if you engaged the manufacturer to create the mould, then it would be an expense as they own the intellectual property.
This could be similar to engaging an architect to design a house, you pay the architect for the design but they own the intellectual property of the design. They could resell that design to another client, but you can’t sell the design to anther person.
With regards to 2 - The tooling cost over $1,000. Is this a depreciable asset?
This would be an expense, as the tooling is a manufacture setup cost. However if you had the tools made by Party A and supplied then to Party B (the manufacture) then they could be asset.
Having said that for 1 & 2 - you could capitalise these expenses and write them off over a period so that the P&L is not slugged in one hit. If the mould and tooling have a life span of 3 years, then you could write a 1/3 each year. These wouldn’t be depreciable asset…
This could be similar to paying the rent three years in advance. Manager easily caters for this.
With regards to 3 - How do we carry these product components on our books?
These would be Inventory Items. At first they be classified as raw materials and when they are filled they are transferred into Finished Goods. Finished Goods are sold to your clients. Manager has a Production Order process which enables this transfer to occur.
With regards to 4 - These displays cost more than $500 per unit. Are these depreciable assets?
Yes.
Manger, using various processes can handle all these questions