As an internet service provider, we have modems that can be rented by customers, and these modems can be returned for credit when customers no longer use our service. So, where should this thing go in the income statement? Is it considered as an inventory? Is there a depreciation associated with it? Your help would be greatly appreciated!
2007-11-14 05:38:35 · 1 answers · asked by mary2004 1 in Business & Finance ➔ Other - Business & Finance
You should separate the rental and deposit elements, otherwise it would be extremely difficult for accounting purposes. The deposit element would remain as a liability in the books until the customer returns the modem and the deposit is refunded. The rental portion would go to the income statement as income. The cost of the modems should theoretically be in fixed assets for tracking, depending on your capitalisation policy and whether the cost of a modem falls above or below the threshold in the policy. If taken to fixed assets, depreciation would follow. But with all these technological advances, wouldn't it be better to sell the modems? By the time the customer returns it, it may be outmoded and you probably can't rent it out again.
2007-11-14 12:41:54 · answer #1 · answered by Sandy 7 · 0⤊ 0⤋