Accounting for display stands

Accounting for display stands

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A company supplies goods to retailers (for a charge).  From time to time it also supplies display stands free of charge to the retailers.   The stands have a life of (say) 3 years.

The company currently expenses the stands when they go to the retailer, which I feel is reasonable as once issued the stands aren't in the company's control.  However an alternative treatment as a fixed asset has been suggested (which I'm struggling with) - can anyone see any strong arguments that support this alternative treatment?

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By cheekychappy
09th Oct 2015 14:53

It’s not a fixed asset. Expensing the stands appears to be the correct treatment.

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By tonycourt
09th Oct 2015 15:19

Who owns the stands?
The implication I draw from your post is that ownership of the stands passed from the supplier to the retailer. If that's the position then they cannot be fixed assets of the supplier and CAs aren't relevant.

Conversely if the supplier retains ownership they are fixed assets and CAs are appropriate.

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By Scriptic
09th Oct 2015 16:19

Expense Them Regardless.

Physical design features and graphics of display stands are generally specific to the products they carry and unlikely to be recycled. They will not therefore possess any value once they are transferred regardless of how the company deals with title. They should therefore be expensed in the interests of good business.

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Replying to Duggimon:
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By tonycourt
09th Oct 2015 16:37

Accounting and tax practice
@ Scriptic..... So is your advice to ignore tax law and accepted accounting practice?

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By Vaughan Blake1
09th Oct 2015 16:44

Materiality

One of my first questions with this type of query is, how much £ per annum are we talking about?  Display stands tend to get lost and damaged and if the annual cost is relatively small, fully expensing them seems sensible and reasonable.  Given the AIA limit HMRC are unlikely to be fussed either way. 

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By tonycourt
09th Oct 2015 17:24

Accounting v tax

Materiality is an accounting concept and VB's comment is therefore reasonable. But bear in mind that materiality is subjective - a expense may be small for a large business, but the same amount may be large (and thus material) for a small business.

There is no such thing as materiality for tax purposes. Unless HMRC set a de minimis limit or exemption for a particular type of transaction expenditure must be subjected to the appropriate tax treatment. However, of course, common sense should prevail over small amounts.

The AIA might well cover the costs involved, that being so then why not use it - it's no hardship. Why do it wrong when it's as easy to do it right? 

In my experience HMRC will be bothered if get it wrong, if only for the reason that it indicates that the business isn't following or doesn't understand the rules....and if it can get one thing wrong then it can get another wrong. That's how small enquiries get widened into full investigations. Believe me it happens! 

My parting advice is do it right (whatever that might be) as there's little or no extra effort involved which is presumably why the OP sensibly asked the question.

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By iamtrainee
09th Oct 2015 23:57

revenue or capital expenditures
that is the question..
you have said it yourself the risk and rewards are transferred at the time of supply i.e. it is a revenue expenditure. however the f the agreement states that it must be kept for 3 years on site and no competitors items can be placed on the stands etc meaning the rewards are not transferred that would make a case for it to be treated as capital asset... and would benefit your client trading income as well. Also even it is revenue expense it can be accrued over 3 years and advertising cost as an alternative to help providing it bears some kind of visible logo of the company..

need more info about the terms with retailers about the use of stands....

I am Trainee I am always wrong

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