Chapter 12 Flashcards
Asset
A resource that is controlled by the entity as a result of events in the past and from which future economic benefits will flow to the entity.
Two broad groups of assets
- Current assets
- Non-current assets
Current assets
Assets used in trading, i.e. there is an expectation that the assets will realise within a period of twelve months or the entity’s normal operating cycle, or they are sold or used.
Non-current asset classifications:
- Tangible assets
- Intangible assets
- Financial assets
Examples of tangible assets
Property (Land & Buildings)
Plant machinery & production lines
Equipment (generic, motor vehicles, furniture etc.)
Examples of intangible assets
- Goodwill
- Computer software
- Patents
- Trademarks
- Copyright
Depreciable ammount
cost price of asset less residual value
Cost price
Cost price of asset and any direct costs incurred to bring the asset in working condition for its intended use.
Direct costs (as part of cost price)
- Transport cost
- Initial delivery and handling cost
- Installation cost
Residual value
Amount expected at the sale/trade-in of the asset at the end of its useful life, after deduction of estimated sal and trade-in costs.
What is all-in-all included in the cost price of an asset?
Any costs incurred until the date the asset is ready for use.
Depreciation
The apportionment of the depreciable amount of a depreciable asset over its estimated useful life.
From which date is depreciation written off
From the date that the asset is ready for use.
Not the date of first usage
How is depreciation written off if the asset has not been in use for some time?
Depreciation will not cease, but still be written off.
When will depreciation cease?
Ons the asset is derecognised or if the asset cannot be used to generate income anymore, whichever occurs first.
How is depreciation handled in the accounting structure?
- Depreciation is an expense and will be debited
- The cost price of the asset will be credited
- It is customary no to credit the asset account, but an accumulated depreciation account as such.
Staight-line depreciation method
Depreciation is written off as a fixed amount based on a fixed percentage of the depreciable amount, calculated over the expected life of the asset.
Diminishing balance depreciation method
Depreciation is calculated on the carrying amount (cost price less accumulated depreciation) of the asset, at a fixed percentage from the date ready for use.
Production unit method
The estimated economic life is based on the amount of production units that can be manufactured by the asset.
This is an exception to the standard:
Depreciation is only written off from the date that the asset is put into use (when manufacturing starts).
Depreciation written off is limited to the total budgeted units manufactured (even if more than the budgeted amount is produced).
Fixed asset register
A document that has all the administrative detail of each individual asset as well as the information regarding the accounting transactions related to these assets.
When is an asset derecognised:
- on disposal
- when no future economic benefits are expected from its use of disposal.
Realisation account
Used to compare the proceeds of a sale/trade-in of the asset with its carrying amount to calculate the profit of loss with sale.
Carrying amount
Cost price less accumulated depreciation
6 steps with derecognition of an asset:
- Write depreciation off on the assets up to the date of sale.
- Transfer the cost price of the asset to the realisation account
- Transfer the accumulated depreciation of the asset to the realisation account
- Record the proceeds of sale/trade-in in the realisation account
- Close off the realisation account and transfer the profit of loss to the profit/loss on sale of the asset account.
- Take the information relating to the asset out of the fixed asset register
