Scissors, overalls, desk sets: when do tools, implements and household supplies become an expense, and why are they tracked again on off-balance sheet account 014?

"Ipakchi Tikuv" LLC sews school uniforms. At the start of the month the company bought 12 tailoring scissors, 20 work overalls for the seamstresses and 3 desk sets for the accounting office (pen holder, document tray, hole punch). They are not depreciated over years like a sewing machine, but they are not thread that is used up in a day either. In accounting they have their own name: tools, implements and household supplies. They are part of inventories (NAS No. 4, paragraph 4) and are recorded on account 1080 (NAS No. 21, paragraph 98).

Which items count as tools, implements and household supplies?

Paragraph 5 of NAS No. 4 gives two criteria. It is enough for an item to meet one of them:

• its useful life does not exceed one year;
• regardless of useful life, its unit (set) value at the time of purchase is up to fifty times the base calculation amount. The head may set a lower limit in the accounting policy.

Some items are included in this group regardless of life and value (paragraph 6). The full list:

1. special tools and fixtures (purpose-made tools and fixtures intended for serial, mass or one-off orders);
2. special and sanitary clothing, special footwear;
3. bedding;
4. stationery (calculators, desk sets);
5. kitchen equipment, kitchen linen;
6. temporary (non-title) structures, fixtures and installations whose construction costs are included in the cost of construction and installation work;
7. replaceable equipment with a useful life of less than one year;
8. fishing gear.

At "Ipakchi Tikuv" the overalls fall into group 2 and the desk sets into group 4. Ordinary tailoring scissors are not a special tool, but the company estimated their useful life at less than one year, so they meet the first criterion of paragraph 5.

What entries are made on purchase and when items are put into use?

Purchase amounts (excluding VAT, hypothetical):

When items are put into use, their value is fully written off to production costs or period expenses according to the item's purpose (NAS No. 4, paragraph 68; NAS No. 21, paragraph 98). The scissors and overalls in the workshop go to the cost of the uniforms, and the desk sets in the accounting office go to administrative expenses.

Note the last line. 014 is an off-balance sheet account: it is kept not by double entry but by one-sided receipts and disposals (NAS No. 4, paragraph 68: «in a simple form (in a one-sided manner)»). On the balance sheet the items are already an expense, but the scissors that left the storeroom are still in the workshop.

Why keep track of an item that has already been expensed?

Because the money went to expenses, but the item did not disappear. On 014 records are kept by workshop, storeroom and individual user (NAS No. 21, paragraphs 98 and 451; NAS No. 4, paragraph 76). Under paragraph 68 this operational record shows the names or groups, the month and year the item was put into use, the place of use and the financially responsible person.

The 014 card for "Ipakchi Tikuv" looks roughly like this:

During a stocktake it is exactly this card that is checked against. If 10 scissors rather than 12 are found in the workshop, it is a shortage issue, and you cannot turn a blind eye on the grounds that the expense has already been recorded.

What happens when an item becomes unusable?

A few months later the blades of 4 scissors broke and they became unfit for work. They are removed from 014 only on the basis of a write-off certificate (NAS No. 21, paragraphs 99 and 451). Paragraph 78 of NAS No. 4 adds that removal from the off-balance sheet account is made when the item is actually written off and this is confirmed by a primary document.

There is no new entry on the balance sheet accounts at this stage, because the value of the scissors went to 2010 in the very month they were put into use.

Three more rules are useful:

• Costs of sharpening scissors or repairing overalls are also production costs or period expenses according to the item's purpose (paragraph 73). Replacing parts does not change the item's cost (paragraph 74).
• An item that is not being used but is still usable may be recorded as other operating income at net realizable value (paragraph 75). The NAS No. 21 table has no separate line for this, so set out the entry in your accounting policy.
• If a unit's value exceeds ten times the base calculation amount, the company may expense it not in one go but as a deferred expense, in proportion to output or in equal instalments (paragraphs 69 and 70). The chosen method must be stated in the accounting policy (paragraph 77).