Chapter 11

Question 1

Non current asset

Answer 1

Tangible or intangible asset acquired for over more than 1 year and are recorded in the SoFP

Question 2

Cost of a non current asset

Answer 2

Cost includes everything that brings the asset into first use and doesn’t include upkeep or staff costs

Question 3

Depreciation

Answer 3

Spreads the cost of a non current asset on a systematic basis over a period of time using the matching concept

Charges to the P/L as an expense

Question 4

Depreciation methods

Answer 4

Straight line
Reducing balance

Question 5

Straight line depreciation method

Answer 5

(Cost - residual value) / useful life of asset

Question 6

Residual value

Answer 6

The value an asset is expected to have at the end of its useful life

If not stated it is zero

Question 7

Double entry for the purchase of a non current asset

Answer 7

Dr - NCA - SoFP
Cr - Cash or payables

Question 8

Annual depreciation double entry

Answer 8

Dr - depreciation expense - P/L
Cr - allowance for depreciation (accumulated depreciation) - SoFP

Question 9

Carrying value (net book value or NBV) formula

Answer 9

Cost of asset - accumulated depreciation

SoFP

Question 10

Allowance for depreciation

Answer 10

A credit balance deducted from cost in the SoFP

Question 11

Reducing balance method of depreciation

Answer 11

Calculates depreciation as a fixed percentage of the carrying value at the start of the year (a different value is taken off each year)

Question 12

Reducing balance formula

Answer 12

Depreciation multiplier x carrying value

Question 13

Carrying value formula for reducing balance method of depreciation

Answer 13

Cost x (1- depreciation multiplier)^ number of years

Question 14

Change in useful life method

Answer 14

1. Straight line or reducing balance method for depreciation
2. Calculate the carrying value
3. (Carrying value + modification - residual value) / useful life

Question 15

Disposal

Answer 15

Getting rid of a non current asset during or after its useful life

Makes a profit or loss disposal recorded in the P/L

E.g. no longer using, broken, upgrading

Question 16

Profit / Loss formula

Answer 16

Sale proceeds - carrying value of asset at date of disposal

Question 17

Profit / loss on disposals - accounts

Answer 17

Proceeds are debited to cash account and credited to an asset disposal in the P/L

Balances on the non current asset cost and accumulated depreciation account are cleared to nil and transferred to the disposal account

Question 18

Part exchange

Answer 18

Part exchanging an old asset for a new one

Old asset is treated as a disposal

Part exchange allowance is substituted for proceeds

New asset is capitalised at its cost

Question 19

Intangible assets

Answer 19

No physical substance
Controlled by the entity
Greater than 1 year

E..g goodwill, patents, licenses and research and development

Question 20

Net assets formula

Answer 20

Total assets - total liabilities