I am working for a construction equipment dealer where we have residual stock of spare parts (slow & non moving) valuing USD 0.75 million stocked for after sales services.
Though the residual stock is belong to discontinued/ new dealerships, accumulated over 14 years, total value is less than 0.6% of the total equipment sold so far and 40% is already under provision, management is very much concerned about the cost as there is no depreciation.
Could you please advice:
1) Is there any standard practice to control/ account the cost of residual stock (slow/ non moving parts), as I think they have to be depreciated against the provision, as it is maintained not only for the after sales services, cost is collected from the past sales, but also to support the sale of equipment (availability of spare parts is essential for the customers to buy equipment)
2) After how many years spare parts can be considered as dead stock, as certain desirable and critical parts are stocked to avoid long downtime may or may not be sold?
Regards
Prakash
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