10. Non current assets: aquisiton and depreciation

Question 1

Non current assets

Answer 1

business will hold on to it for longer than 12 months

can be tangible or intangible

Question 2

Tangible non current assets

Answer 2

land, buildings, motor vehicles, machinery and equipment

Question 3

Non tangible current assets

Answer 3

goodwill, development, licenses and patents

Question 4

Capital expenditure

Answer 4

expenditure likely to increase the future earning capability of the organization i.e. putting in central heating
SFP

Question 5

Revenue expenditure

Answer 5

expenditure associated with the maintaining of the organisations present earing capacity i.e. repairing a car that has been damaged
SPL

Question 6

Acquisition of a non current asset CAPEX

Answer 6

INCLUDES;
purchase price
delivery costs
legal fees
subsequent expenditure which enhances the asset
trial and tests (excluding training costs)

Question 7

Acquisition of a non current asset REVEX

Answer 7

EXCLUDES;
repairs
renewals
repainting
administration
general overheads
wastage
training costs

Question 8

Double entry to record the purchase of a non current asset

Answer 8

DR non current asset account

CR cash/ bank/ payables

Question 9

Depreciation

Answer 9

IAS16 the measure of the cost or revalued amount of the economic benefits of the tangible non-current asset that has been consumed during the period

Question 10

calculating depreciation

Answer 10

straight line

reducing balance

Question 11

double entry for depreciation

Answer 11

DR depreciation expense (SPL)

CR accumulated depreciation account (SFP)

Question 12

Straight line depreciation

Answer 12

original cost - estimated residual value
/
estimated useful life
= depreciation per annum

or
% x cost

Question 13

reducing balance depreciation

Answer 13

depreciation charge = % x carrying value

Question 14

Displaying accumulated depreciation on the SFP

Answer 14

Shown as a reduction against the cost of non current assets
Cost x
Accumulated depreciation (x)
= carrying value x

Question 15

depreciation in year of acquisition and disposal

Answer 15

either;
provide a full year in acquisition and none in disposal

or

monthly pro rate depreciation based on the exact number of months that the asset has been owned

Question 16

Accounting for intangible non current assets

Answer 16

purchased intangibles are capitalized and internally generated are not

Amortisation must be charged on intangibles capitalized which is a reflection of wearing out the asset

Question 17

Goodwill

Answer 17

value placed upon a business in excess of the sum of it’s individual assets

must be estimated on an annual basis
if value is less than amount on SFP then the goodwill must be impaired (charged to SPL as an expense)

Question 18

Purchased goodwill

Answer 18

value over and above the sum of the asset values when buying a company

Question 19

Non purchased goodwill

Answer 19

is created by new owners over a period of time

Question 20

net tangible assets

Answer 20

assets - liabilities

Question 21

Accounting for goodwill

Answer 21

DR goodwill ledger account

Question 22

valuation of intangible assets

Answer 22

all intangibles are valued whether or not they have the potential to earn profits in the future

Question 23

Development

Answer 23

development expenditure must be capitalized as an intangible asset on SFP as long as SECTOR applies

Question 24

SECTOR

Answer 24

Separate project
Expenditure identifiable and reliably measured
Commercially viable
Technically feasible
Overall profitable
Resources available to complete

Question 25

Amortisation of intangible assets

Answer 25

any development expenditure capitalized must be amortised over its useful life with the product or production method commences