10: Non-current assets and depreciation Flashcards
What is the double entry for non current asset?
Dr Non-current asset (NCA)
Cr Cash/payables
What is included in the cost of a NCA?
All directly attributable amounts to bring it to its present location and condition e.g. purchase price, delivery costs, import duties etc.
It can also include costs that enhance the asset e.g. improvements
What is a NCA’s life span known as? And what is the exception to this?
Useful life - every tangible NCA has a limited life except land.
What is writing off an NCA known as? Explain
Depreciation - matches the cost of the asset to the period the business expects to gain benefits from using it.
How is the carrying amount worked out?
Cost - Accumulated depreciation = CA
What are the two methods to calculate the depreciation charge?
- Straight line method
- Reducing balance basis
What is the calculation of depreciation (straight line)?
(Cost - residual value)/ Useful life (Months or years)
What is the calculation for reducing balance depreciation?
Cost - accumulated depreciation x Percentage depreciation
What is a shortcut to work out carrying value when there is a lot of years for reducing balance method?
Carrying value after n years = Cost x (1-depreciation rate as decimal)^n
What happens to depreciation where expenditure is incurred to enhance an asset after initial purchase?
This is added to assets cost and depreciated over the assets remaining useful life - known as subsequent expenditure.
Why should the depreciation method be reviewed?
Should be reviewed anually for appropriateness due to changes in expected useful life, residual value or pattern of usage.
What happens when an asset falls in value?
The asset should be written down to its new carrying value, called the recoverable amount which is the higher of the “fair value less cost to sell” and its value in use.
What is the double entry accounting for depreciation each period?
Dr Depreciation expense (P/L)
Cr Accumulated depreciation (SOFP)
What is it called when a business sells a NCA? What is the calculation for P/L?
Disposal
Net disposals proceeds - Carrying value (Cost - acc depr) = P/L
What are the double entries for disposals?
- Remove cost of disposed asset
Dr Disposals account
Cr Non-current cost account - Remove acc depreciation from acc depr ledger
Dr Acc dep account
Cr Disposals account - Account for the disposals proceeds
Dr Cash
Cr Disposals account
What are disposals given in a part exchange?
A business does not receive cash for an asset but receives a part exchange allowance against the cost of a new asset?
3 steps are the same but the cash proceeds in step 3 is replaced with part exchange value assigned to the old asset and debited to the new asset cost account e.g.
Dr new asset
Cr disposal
What is asset register?
A detailed listing of all non-current assets held by an organisation.
What are intangible assets? Give examples
NCA that do not have a physical substance. e.g. Licenses, patents, brands.
Treated same way as tangible NCAs. Initally valued at directly attributable cost, then amortised over assets useful life on straight line basis assuming a nil residual value.
What is goodwill?
Where the value of a business as a whole exceeds the value of its individual net assets, due to factors such as a good reputation with customers, skilled workers, good location/business and relationships with suppliers.
Internally generated goodwill cannot be recognised as an asset.
Purchased goodwill arises when an entity purchases an existing business.
What is the double entry for internally generated intangible assets?
Dr Expense (Revenue expenditure) or intangible asset (capital expenditure LT future income)
Cr Cash
