8. Non-current assets and intangible assets

Question 1

Examples of expenditures to include in the cost of a non-current asset would include, but not be limited to, the following:

● ________________

● ________________

● ________________

● ________________

● ________________

● ________________

Answer 1

Examples of expenditures to include in the cost of a non-current asset would include, but not be limited to, the following:

● purchase price

● taxes paid on the purchase

● fees such as legal (conveyancing) costs paid to a solicitor

● delivery costs

● insurance costs during transit

● installation costs

Question 2

A non-current asset converts to an ______ as it is used or consumed.

Answer 2

A non-current asset converts to an expense as it is used or consumed.

Question 3

The expensing of non-current assets is accomplished through _______.

Answer 3

The expensing of non-current assets is accomplished through depreciation.

Question 4

depreciation

Answer 4

The process of systematically and rationally allocating the cost of a non-current asset over its useful life.

Question 5

depreciation expense

Answer 5

The portion of a non-current asset’s cost that is recognised as an expense in the current period.

Question 6

accumulated depreciation

Answer 6

The cumulative amount of depreciation expense recognised to date on a non-current asset.

Question 7

Depreciation expense is normally calculated at the ______ of an accounting period and is recorded with an ______ journal entry.

Answer 7

Depreciation expense is normally calculated at the end of an accounting period and is recorded with an adjusting journal entry.

Question 8

carrying amount

(also known as…)

Answer 8

net book value

The unexpired cost of a non-current asset, calculated by subtracting accumulated depreciation from the cost of the non-current asset.

Question 9

cost

Answer 9

The historical cost of a non-current asset being depreciated.

(the amount that was recorded when the asset was purchased)

Question 10

residual value

(also known as…)

Answer 10

salvage value

An estimate of the value of a non-current asset at the end of its useful life.

Question 11

useful life

Answer 11

The length of time a non-current asset is expected to be used in operations.

Question 12

depreciation method

Answer 12

The method used to calculate depreciation expense, such as the straight-line, reducing-balance and units-of-activity methods.

Question 13

straight-line method

Answer 13

A depreciation method that results in the same amount of
depreciation expense each year of the asset’s useful life.

Question 14

Key Formula

straight-line method

Answer 14

Question 15

reducing-balance method

Answer 15

A depreciation method that accelerates depreciation expense into the early years of an asset’s life.

Question 16

Key Formula

reducing-balance method

Answer 16

Question 17

units-of-activity method

Answer 17

A depreciation method in which depreciation expense is a function of the actual usage of the asset.

Question 18

Key Formula

units-of-activity method

Answer 18

Question 19

When a non-current asset’s recoverable amount falls materially below its carrying amount, the asset is
considered ________.

Answer 19

When a non-current asset’s recoverable amount falls materially below its carrying amount, the asset is
considered impaired.

Question 20

cost model

Answer 20

After recognition as an asset, an item of plant, property and equipment shall be carried at its cost less any accumulated depreciation and any impairment loss.

Question 21

revaluation model

Answer 21

If fair value can be measured reliably the asset shall be carried at a revaluation amount.

Question 22

The accounting standards divide income into two parts: ‘________________’ and ‘________________’.

Answer 22

The accounting standards divide income into two parts: ‘profit or loss’ and ‘comprehensive income’.

Question 23

Upward revaluations of assets are included in comprehensive income, while the sale of an asset above its carrying amount would be (normal) profits.

Answer 23

Upward revaluations of assets are included in comprehensive income, while the sale of an asset above its carrying amount would be (normal) profits.

Question 24

The second step is to calculate any gain or loss on the
disposal by comparing the asset’s carrying amount to the proceeds from the asset’s sale, if any.

When the proceeds exceed the carrying amount, a _____ on disposal is recognised.

When the carrying amount exceeds the proceeds, a _____ on disposal is recognised.

Answer 24

The second step is to calculate any gain or loss on the
disposal by comparing the asset’s carrying amount to the proceeds from the asset’s sale, if any.

When the proceeds exceed the carrying amount, a gain on disposal is recognised.

When the carrying amount exceeds the proceeds, a loss on disposal is recognised.