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Producing Financial Statements > Acquisition of non-current assets > Flashcards

Acquisition of non-current assets Flashcards

1
Q

What is capital expense?

A

Expenditure incurred on the purchase, alteration or improvement of Non Current Assets.

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2
Q

What is Revenue Expenditure?

A

Expenditure incurred on the day to day running costs of the business.

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3
Q

When capitilising assets what is included in the cost? (6)

A

Purchase Price
Delivery
Construction (labour costs)
Instillation and assembly
Cost of testing
Professional Fees

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4
Q

When calculating the total expense to the P&L in relation of an acquisition of an asset what two possible factors will need to be considered?

A

Maintence and Advertising

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5
Q

What must not be included when capitalising assets?

A

Repair and maintenance costs
Admin and general overheads

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6
Q

What concept is being used when capitalising assets?

A

Accruals

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7
Q

How is VAT treated when capitalising assets?

A

If the business is VAT registered then the VAT is not included as part of the cost as they can claim the VAT back. If the business is not VAT registered then the VAt is added onto the cost as they can’t claim it back

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8
Q

Doubke entry for the acquisition of a Non Current Asset?

A

Dr NCA
Cr Bank/Cash

If VAT is accounted for then the doubel entry is:

Dr NCA
Dr VAT
Cr Bank/Cash

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9
Q

What is the Residual Value regarding Depreciation?

A

How much it can be sold for at the end of its useful life

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10
Q

What is the carrying amount?

A

The value at which the asset is shown on the SFP. It’s the cost of the asset minus the accumulated depreciation.

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11
Q

What is the depreciation double entry?

A

Dr Depreciation Expense
Cr Accumulated Depreciation

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12
Q

How to work out the annual depreciation charge on a straight line method?

A

Cost - Scrap Value divided by the useful life (years)

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13
Q

How to work out the depreciation charge of previous years for the straight line method?

A

Cost of asset x Depreciation %. Will give you the annual Depreciation. Work out each year of depreciation using this amount, same amount of depr each year.

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14
Q

How to work out the diminishing balance depreciation?

A

Depreciation rate % x Carrying amount = Depreciation

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15
Q

How to work out the depreciation charge of previous years for the diminishing balance method?

A

Cost - Accumulated Depr = Carrying amount
Carrying amount x Deminishing balance % = Depreciation charge.

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16
Q

How is depreciation charge and accumulated depreciation recorded in the TB

A

Depreciation charge = Debit SPL
Accumulated Depr = Credit SFP

17
Q

How to work out depreciation if it is being pro-rata for 3 months?

A

Cost x Depr % / 12 x 3

18
Q

How to work out the Gain or Loss on disposals?

A

Cost of asset - Acc Depr = Carrying amount
Carrying amount - Disposal Proceeds
= Gain or Loss on Disposal

19
Q

Method of Dr and Cr: How to Dispose a NCA for cash?

A

Remove cost of asset:
Dr Disposals
Cr NCA at Cost

Remove Acc Depr:
Dr Acc Depr
Cr Disposals

Account for sale proceeds:
Dr Bank
Cr Disposals

Balance off the disposals

20
Q

How to Dispose a NCA for a part exchange?

A

Remove cost of asset:
Dr Disposals
Cr NCA at Cost

Remove Acc Depr:
Dr Acc Depr
Cr Disposals

Account for part - exchange allowence:
Dr NCA at Cost
Cr Disposals

Balance off disposals

IF there is any additional payment:
Dr NCA at Cost
Cr Bank

21
Q

If the Disposals account has a debit or a credit balance what does this mean?

A

Debit = gain
Credit = loss

22
Q

What are the main Debits and Credits entered into the Disposals account when disposing a NCA for cash

A

Dr - Machine at Cost
Cr- Accumulated Depr, Bank

23
Q

What are the main Debits and Credits entered into the Disposals account when disposing a NCA for a part exchange?

A

Dr - Machine at Cost
Cr - Accumulated Depr, Part exchange allowence

24
Q

How to calculate the new cost of a machine after the old one has been disposed of?

A

Part exchange + Cash paid from bank

25
Q

Is the depreciation charge account a balance c/d or send to P&L?

A

Send to P&L

26
Q

Is the accumulated depr charges account a balance c/d or send to P&L?

A

Balance c/d

27
Q

What will the entries be in the machine at cost account if there has been a part ex + cash?

A

Dr - balance b/d, cash, part ex
Cr - old machine at cost

28
Q

If an item has been mistaken as revnue expenditure rather than capital, how will net profit, current assets, current liabilites and non current assets be affected

A

net profit - understated
current assets - no effect
current liabilities - no effect
non current assets - understated

29
Q

What is the main purpose of applying deprecation on the NCA register?

A

To show the accruals concept

Producing Financial Statements (13 decks)

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