Operating Equipment

Objective :

Established the definition of Operating Equipment to ensure proper control and manage Operating Equipment.

Procedure :

1. Definition 

The term of operating equipment is used to refer to the following items:

• Chinaware 

• Glassware 

• Silverware & Hollowware

• Linen 

• Kitchen Utensils

2.       Operating Par Level / Initial Purchase.

The accounting treatment of operating equipment is based on the concept of operating par level. Operating par level refers to the quantities necessary in order to operate a hotel efficiently and in essence forms part of the base fixed assets of the business such as the Building, Plant & Machinery and Furniture & Fixtures.

The initial purchase of operating equipment for new hotels should be based on the approved operating par levels. The value of these items should be capitalized. Any purchases in excess of the operating par levels (e.g., due to minimum purchase quantities imposed by the supplier) are to be treated separately as inventory items and physically segregated from equipment in circulation (including Stewarding Store).

3. Depletion and Replenishment.

   To introduce effective controls over the purchase and accounting of operating equipment, it is imperative that the operating par levels be maintained. Any depletion to the operating par levels (caused by shortages and breakage) should be re-ordered on the next purchase。 It is recommended that this be done once a month.

4. Replacement Purchases

   Subsequent purchases for replacement, for purposes of maintaining the approved operating par levels, are to be expensed upon issue to circulation. See paragraph #9.

   
   

5. Increasing Operating Par

   Purchases for purposes of increasing operating par levels (e.g. due to increased level of business caused by the expansion of an outlet) or for a new line of equipment (e.g. replacing of a brand of chinaware) are to be capitalized.

   
   

6. Net Book Value of Items Replaced

   The old line that is being replaced should be removed entirely from the books, irrespective of whether the items are discarded or continue to be used in other areas of the hotel for purposes of depleting the stock. Items replaced, if having a residual value, i.e., written-down value, should be accounted as discard of fixed assets.

   
   

7. Depreciation Rate

   The depreciation rates should be subject to the prevailing local accounting or tax regulations and should not exceed the maximum permitted.

   
   

8. Matching of Costs Against Revenue

   In order to match costs against revenues in the same accounting period (i.e., calendar year), it will be imperative for hotels to provide for the difference (in value terms) between the approved operating per levels and the quantities physically on hand.

   
   

9. General Provision 

   The practice of creating general provisions for operating losses on a monthly basis followed by quarterly or annual adjustments to reflect actual losses is no longer appropriate. Issues to circulation which should reflect replacements for breakage and losses should be charged – off on a monthly basis against the quarterly provision for shortfall.