Medical Device Accounting: From Acquisition to Disposition

Posted In | Finance | Accounting Software | Biopharma and Medical Device

Medical device companies operate in a complex and heavily regulated environment, which demands meticulous tracking of assets, from acquisition to disposition. Accounting for these devices is no small task. In this article, we'll outline the key stages and considerations of medical device accounting.

 

Acquisition

The acquisition phase is the beginning of the accounting journey. Here, the cost of the device is recorded as an asset on the company's balance sheet. The acquisition cost is not just the purchase price, but it includes all costs necessary to get the device ready for use, such as shipping, installation, and calibration costs.
 

Depreciation

Once the medical device is put into use, its value starts to depreciate. The depreciation process spreads the cost of the device over its useful life, which can range from a few years to several decades, depending on the type of device. The depreciation expense is recorded periodically, typically annually, and it reduces the value of the asset on the balance sheet while being recorded as an expense on the income statement.
 

Maintenance and Upgrades

During the device's useful life, it may require maintenance or upgrades. Regular maintenance costs are usually expensed as they occur. However, costs related to significant upgrades that extend the useful life of the device or improve its functionality can be capitalized, i.e., added to the device's carrying value on the balance sheet and depreciated over time.
 

Impairment

If a device's market value falls below its carrying value on the balance sheet, an impairment may be necessary. Impairment is a reduction in the recorded cost of the asset to reflect its reduced market value. Impairment losses are recorded as expenses on the income statement and reduce the carrying value of the asset on the balance sheet.
 

Disposition

Eventually, the device will reach the end of its useful life or be replaced with a newer model. At this stage, the device is disposed of, and its value is removed from the company's balance sheet. If the device is sold, the proceeds are recorded as revenue, and any difference between the carrying value and the sale price is recorded as a gain or loss on the income statement.
 

Accounting Software and Automation

Given the complexities of medical device accounting, many companies are turning to specialized accounting software to streamline these processes. These software solutions can automate tasks such as depreciation calculation and impairment analysis, reducing the risk of errors and improving efficiency.
 

Accounting for medical devices involves tracking the value of these assets from acquisition to disposition, including phases of depreciation, maintenance, upgrades, and potential impairment. Given the complexity and regulatory scrutiny involved, the use of specialized accounting software can provide a significant advantage, ensuring accuracy and compliance throughout the device's life cycle. Through effective management of medical device accounting, companies can maintain financial control and focus on their core mission of improving patient care.