4. Non-Current Assets

Question 1

What is the CIMA definition of an asset?

Answer 1

A present economic resource controlled by the entity as the result of past events

Question 2

What is the time frame of asset recovering to be classified as non current?

Answer 2

Over 12 months

Question 3

What are property plant and equipment?

Answer 3

Tangible non current assets that:
are held by an entity for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and
are expected to be using during more than one period.

Question 4

What value are assets recognised at initially?

Answer 4

Cost: purchase price, installation/delivery costs, dismantling and removal costs

Question 5

When are subsequent costs capitalised?

Answer 5

When the cost of essential limited life parts replacement is incurred (NOT servicing costs)

Question 6

What are the two options for valuing non current assets after aquisiton?

Answer 6

Cost model (cost less deprn) or revaluation model (fair value)

Question 7

How often should the useful life of an asset be reassessed?

Answer 7

Every year

Question 8

What is the fair value of an asset?

Answer 8

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

Question 9

Which IAS covers fair valuation?

Answer 9

IAS 16

Question 10

What else should you do when you revalue one asset to fair value?

Answer 10

Revalue all other assets in the same class

Question 11

What is the accounting treatment for the surplus created on revaluation?

Answer 11

Credit the revaluation surplus reserve

Question 12

What are the accounting entries needed when an asset of original cost X, having accumulated depreciation Y, is revalued to Z?

Answer 12

Dr Asset Cost Z - X
Dr Asset Deprn Y
Cr Reval Surplus Z - X + Y

Question 13

What can be done to offset the impact of increased depreciation for assets that have been revalued upwards?

Answer 13

Transfer the excess deprn from the revaluation surplus to retained earnings

Question 14

What should be done with any remaining reval surplus on disposal of the asset?

Answer 14

Transferred to retained earnings

Question 15

When is an asset impaired?

Answer 15

If its carrying amount is greater than its recoverable amount

Question 16

What is the recoverable amount of an asset?

Answer 16

The higher of the value in use and the fair value less cost to sell

Question 17

What are possible external sources of impairment? (3)

Answer 17

1. Significant decline in market value
2. Changes in the technological market
3. Increase in market interest rates

Question 18

What are possible internal sources of impairment? (3)

Answer 18

1. Obsolescence or physical damage
2. Change in use of the asset
3. Evidence of poor performance

Question 19

What are the accounting entries for recognising impairment on an asset carried at historical cost?

Answer 19

Dr P&L (Deprn)
Cr SFP (Non Current Asset)

Question 20

What are the accounting entries for recognising impairment on an asset carried at revalued cost?

Answer 20

Dr SFP (Reval Surplus)
Dr P&L (Deprn, any excess above amount in reval surplus)
Cr SFP (Non Current Asset)

Question 21

What 4 criteria must an asset meet in order to be classified as ‘held for sale’?

Answer 21

Seeking (a buyer)
Available (for immediate sale)
Likely (to be sold, so at a reasonable price)
Expected (within one year)

Question 22

What are the 4 steps taken once an asset is held for sale?

Answer 22

1. Update the carrying amount in accordance with IAS 16 (depreciate up to date)
2. Revalue at lower of carrying amount and fair value less cost to sell
3. Transfer the asset to current assets
4. Cease depreciation