Chapter 12

Question 1

Asset

Answer 1

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.

Question 2

Two broad groups of assets

Answer 2

• Current assets

- Non-current assets

Question 3

Current assets

Answer 3

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.

Question 4

Non-current asset classifications:

Answer 4

• Tangible assets
• Intangible assets
• Financial assets

Question 5

Examples of tangible assets

Answer 5

Property (Land & Buildings)
Plant machinery & production lines
Equipment (generic, motor vehicles, furniture etc.)

Question 6

Examples of intangible assets

Answer 6

• Goodwill
• Computer software
• Patents
• Trademarks
• Copyright

Question 7

Depreciable ammount

Answer 7

cost price of asset less residual value

Question 8

Cost price

Answer 8

Cost price of asset and any direct costs incurred to bring the asset in working condition for its intended use.

Question 9

Direct costs (as part of cost price)

Answer 9

• Transport cost
• Initial delivery and handling cost
• Installation cost

Question 10

Residual value

Answer 10

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.

Question 11

What is all-in-all included in the cost price of an asset?

Answer 11

Any costs incurred until the date the asset is ready for use.

Question 12

Depreciation

Answer 12

The apportionment of the depreciable amount of a depreciable asset over its estimated useful life.

Question 13

From which date is depreciation written off

Answer 13

From the date that the asset is ready for use.

Not the date of first usage

Question 14

How is depreciation written off if the asset has not been in use for some time?

Answer 14

Depreciation will not cease, but still be written off.

Question 15

When will depreciation cease?

Answer 15

Ons the asset is derecognised or if the asset cannot be used to generate income anymore, whichever occurs first.

Question 16

How is depreciation handled in the accounting structure?

Answer 16

• 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.

Question 17

Staight-line depreciation method

Answer 17

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.

Question 18

Diminishing balance depreciation method

Answer 18

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.

Question 19

Production unit method

Answer 19

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).

Question 20

Fixed asset register

Answer 20

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.

Question 21

When is an asset derecognised:

Answer 21

• on disposal

- when no future economic benefits are expected from its use of disposal.

Question 22

Realisation account

Answer 22

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.

Question 23

Carrying amount

Answer 23

Cost price less accumulated depreciation

Question 24

6 steps with derecognition of an asset:

Answer 24

1. Write depreciation off on the assets up to the date of sale.
2. Transfer the cost price of the asset to the realisation account
3. Transfer the accumulated depreciation of the asset to the realisation account
4. Record the proceeds of sale/trade-in in the realisation account
5. Close off the realisation account and transfer the profit of loss to the profit/loss on sale of the asset account.
6. Take the information relating to the asset out of the fixed asset register

Question 25

What happens when an insured asset is destroyed or damaged?

Answer 25

The asset is derecognised.

The insurance compensation is recognised as a separate income item in the income statement in a seperate ledger account.

Question 26

Transaction:

Write depreciation off on the assets:

Answer 26

Dt - Depreciation

Cr - Accumulated depreciation

Question 27

Transaction:

Transfer the cost price of the asset to the realisation accoun

Answer 27

Dt - Realisation

Cr - Asset @ cost price

Question 28

Transaction:

Transfer the accumulated depreciation of the asset to the realisation account

Answer 28

Dt - Accumulated depreciation

Cr - Realisation

Question 29

Transaction:

Record the proceeds of sale/trade-in in the realisation account

Answer 29

Dr - Bank/Debtors

Cr - Realisation

Question 30

Transaction:

Recognise compensation from an insurer

Answer 30

Dr - Debtor

Cr - Compensation from the insurer

Question 31

Transaction:

Cash received from insurer

Answer 31

Dr - Bank

Cr - Debtor