03 01 03 Purchase on Non-Current Assets

Question 1

What in a non-current asset?

Answer 1

An asset that is going to be used for more than one period

Question 2

What is Capital Expenditure?

Answer 2

The acquisition, replacement or improvement of non currents assets

Question 3

What is revenue expenditure?

Answer 3

For the repair, maintenance or servicing of non current assets

Question 4

What is capitalisation of a non current asset?

Answer 4

When a non current assets is show in the SOFP

Question 5

What is a capitalisation policy?

Answer 5

When a business sets a minimum amount a non current asset has to be worth in order for it to be capitalised

Question 6

What contributes to the cost of a non current asset?

Answer 6

• The purchase price of the asset
• Any costs associated with bringing the asset to the location of use and the necessary condition for the manner of use it is intended for

Question 7

If a business if VAT registered, will the VAT be capitalised with the asset?

Answer 7

No, as it is going to be reclaimed from the tax authority (HMRC)

Question 8

If a business is not VAT registered, will VAT be capitalised with the asset?

Answer 8

Yes, as they are unable to claim any back from the tax authority (HMRC) it will contribute to the cost.

Question 9

What is a cash purchase?

Answer 9

Using cash or standard credit terms to purchase an asset

Question 10

What is a loan?

Answer 10

A fixed amount borrowed from a bank or other provider which is repaid over and agreed period of time with interest paid on top.

Question 11

What is a hire purchase?

Answer 11

When a business pay an initial deposit followed by a set number of instalment payments after which the assets is owned by the business

Question 12

What is a finance lease?

Answer 12

A method of financing an asset but where there is normally no option to purchase the asset at the end of the lease term

Question 13

What is a part exchange?

Answer 13

When an old asset is given in exchange for a reduction in price for a new asset

Question 14

What is the double entry for an asset purchased with cash?

Answer 14

Non Current Asset at cost (SOFP) - Debit

Bank (SOFP) - Credit

Question 15

What is the double entry for the purchase of a non current asset through a bank loan?

Answer 15

1) Bank (SOFP) - Debit
Loan (SOFP) - Credit

2) Non current assets at cost (SOFP) - Debit
Bank (SOFP) - Credit

Question 16

What is the double entry for an asset purchase through a hire purchase agreement?

Answer 16

Non Current Asset at cost (SOFP) - Debit

Liability (Supplier account) (SOFP) - Credit

Question 17

If the company if VAT registered what will need to be included in the journals?

Answer 17

A debit entry in the VAT control account to show the amount that will be reclaimed from the tax authority (HMRC)