Why loose tools are excluded from inventory for calculating current ratio ?
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y because loose tools areused for more than a year and capitalised under "Tools, Jigs & Fixtures". This is
treated as Fixed Asset & depreciation needs to be charged to
P&L A/c. If the cost of tool is very small & long life is
not ensured, it should be charged off to P&L A/.c as
consumable stores or loose tools.
in any case tools do not come under "Current Assets" except
when they are held for sale (It will be shown as Stock in
Trade under Current Assets).
treated as Fixed Asset & depreciation needs to be charged to
P&L A/c. If the cost of tool is very small & long life is
not ensured, it should be charged off to P&L A/.c as
consumable stores or loose tools.
in any case tools do not come under "Current Assets" except
when they are held for sale (It will be shown as Stock in
Trade under Current Assets).
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