Are the spare parts considered the cost to fulfill contract

Assignment Help Financial Accounting

Reference no: EM131265387

Stellar Bright Solar (“SBS” or “the Company”) is a business that contracts to develop, construct, and operate solar power plants.

SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is responsible for the day-to-day operations of Big Desert as well as for general maintenance and repairs. Big Desert expects SBS to provide routine maintenance for continued operation of the plant and respond to equipment breakdowns and failures by providing immediate repairs. In addition, the terms of the contract require SBS to procure necessary materials to operate, maintain, and repair the plant. To comply with this requirement, the Company must maintain a certain level of materials and supplies (the “spare parts”) at all times.

On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare parts for various components of the solar power plant and procures the necessary parts. Vendors deliver the parts to SBS along with a complete listing describing the quantity and cost of the parts provided. SBS maintains this listing, uses it to track expected usage of the spare parts, and to determine their expected useful lives.

The spare parts consist of customized and generic parts that vary in cost, procurement time, expected usage (i.e., emergency replacement, standard replacement), and expected useful life. The Company uses the composite depreciation method for substantially all of the plant, and it expenses all major plant maintenance.

My questions:

1. Are the spare parts considered the cost to fulfill a contract? are they inventory? I'm not sure if ASC 340-40 is the right one I should look at.

2. Should SBS amortize the spare parts over their estimated useful lives or expense them as consumed? What are the related GAAP rules?

Reference no: EM131265387

Questions Cloud

Traditional indemnity insurance : What is an indemnity plan and how is managed care different from traditional indemnity insurance?

Name five methods for organizing report data : Name five methods for organizing report data. Be prepared to discuss each. What three devices can report writers use to prevent readers from getting lost in the text?

Identifying the company generic strategy : Using the company you chose in Week 1 COCA COLA, post a brief report (500 words) identifying the company's generic strategy or strategies. What evidence do you have of the company's generic strategy?

Describe periodic reports and what they generally contain : Describe periodic reports and what they generally contain. What should a progress report include? - When is the indirect pattern appropriate for justification/ recommendation reports? What is a feasibility report?

Are the spare parts considered the cost to fulfill contract : Stellar Bright Solar (“SBS” or “the Company”) is a business that contracts to develop, construct, and operate solar power plants. SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is respons..

How can you relate a modern opera to our ch readings : How can you relate a modern opera to our CH readings this week? Choose below to explore the modern application and how it ties to our weekly learning: Modern operas include.

What statistical conclusion about reliability : What statistical conclusion about reliability (MTBF) we can draw from the statistical testing experiment above - without any faults detected (explain for example will the vendor be able to provide a 99.99999% warranty?)

Calculate the rotor copper loss : A 3-phase, 400 V, 6-pole, 50 Hz induction motor develops mechanical power of 20 kW at 985 rpm.

What are the best uses of mean and median and mode : What is a yardstick report? What are the best uses of mean, median, and mode? - Researchers can draw various conclusions from a set of data.

User Account

All Pages