11. Non Current Assets and Depreciation Flashcards
What is a non current asset?
An asset purchased for use on a continuing basis, normally over 1 year
Where are non current assets recorded?
In the statement of financial position
What is included in the cost recorded of a non current asset?
All the costs incurred in bringing the asset into use, e.g. delivery, installation and set up costs (NOT training)
What are the two categories of non current asset?
Tangible and Intangible
What is depreciation?
The spreading of the depreciable amount of an asset over its estimated useful life - spreading cost of non current asset on a systematic basis
Which concept applies to depreciation?
The matching concept
Where is depreciation charged?
As an expense on the P&L
What is the straight line method for depreciation?
Charge the same amount of depreciation in each period
(cost - residual value)/expected useful life
What is the double entry for depreciaition?
Dr Depreciation expense (P&L)
Cr Accumulated depreciation (SFP)
What is the carrying value of an asset?
Cost of NCA - accumulated depreciation
What is the reducing balance method for depreciation?
Calculate depreciation as a fixed percentage of the carrying amount at the start of the year
What assets is the reducing balance method most appropriate for?
Assets that depreciate quickly in their early years e.g. cars
How do you calculate the carrying amount of an asset at a particular date, when using the reducing balance method?
Cost x (1 - Rate of Depreciation)^n
What is the rule applied when the estimated useful life of an asset is changed?
Depreciate the carrying amount of the asset over the revised remaining useful life
Are modifications included in the cost of the asset when re-estimating the useful life?
Yes
Is maintenance included in the cost of the asset when re-estimating the useful life?
No
Where is the profit or loss on disposal of a NCA recorded?
The P&L
What is the calculation for the profit or (loss) on disposal?
Sale Proceeds - Carrying amount
What is the double entries for sale of a NCA?
Dr Cash
Cr Asset Disposal Account (P&L)
Dr Asset Disposal Account (P&L)
Cr Non Current Asset/Accum Deprn Account
When we part exchange, how is the profit or loss on disposal calculated?
Part exchange allowance - carrying amount
What is the revaluation reserve/surplus calculation?
Revaluation Surplus = Fair Value - carrying amount at date of revaluation
What is the double entry for revaluation of a NCA? (increase)
Dr Increase in Asset value
Cr Revaluation Surplus on SFP
Why is revaluation surplus on the SFP and not the P&L?
It is not income as it is not realised
What value should non current assets be recorded at on the SFP?
The higher of net realisable value and value in use
What is an impairment?
Reduction in asset value, sometimes due to damage or obsoletion
Where is impairment charged?
As an expense on the P&L
What is goodwill?
The difference between the cost of a business as a whole and the fair value of its separable net assets
What is purchased goodwill?
When a business is acquired for more than the fair value of its separable net assets
How do we account for positive goodwill?
Capitalise on the SFP and review annually for impairment
How do we account for negative goodwill?
Recognise immediately on the P&L
Can we recognise internally generated goodwill?
No, as we cannot value it
What is research?
The original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding
What is the accounting treatment for research costs?
Write off as an expense on the P&L in the period in which they are incurred
What is development?
The application of research findings to plan for the production of a new or substantially improved materials, products, processes or services before the start of commercial production or use
What is the accounting treatment for development costs?
Written off as expense unless: - Probably future economic benefits - Intention to complete - Resources adequate to complete - Ability to use - Technically feasible - Expenditure measured reliably If so, capitalised as intangible NCA amortised over expected useful life
What can be included in development costs?
Materials, services, wages and salaries, depreciation on plant used in development
What cannot be included in development costs?
Selling and administrative expenditure (overheads in P&L)
When does amortisation of development costs begin?
When the asset is available for use
