Chapter 3 - Purchases of non Current Assets Flashcards
What is capital expenditure
This arises from the purchase of non current assets which are necessary to trade over more then one accounting period
What could also be categorised as capital expenditure
Improvements to the earning capacity of an asset e.g an extension to an existing factory allowing more goods to be produced
What would the double entry be for capital items
Debit non current assets
Credit cash
non current assets are increased and the bank decreases
What financial statement would purchasing capital expenditure affect
Increases the value of the statement of financial position
What financial statement would depreciation affect
The profit and loss account
What is a minimum monetary amount
Any asset below a set amount would be treated as revenue expenditure. If internal policies have been set it is important to follow this for consistency
What is revenue expenditure
From purchasing items which are essential for business to trade in the current accounting period
What things can be classed as revenue expenditure
Items which are essential to trade in the current period e.g electricity bills or maintaining the earning capacity of non current assets such as business repairs for hole in factory
What would the double entry be for revenue expenditure
Debit expense account and credit the cash
What financial statement is affected by revenue expenditure
Profit and loss account as these items aren’t assets of the business they affect the profit of the business
What is a cash purchase recorded as
A cash purchase is recorded in the cash payments book
What is the double entry for a cash purchase
Debit non current assets
Credit cash
often businesses post the debit to a category of thee non current assets e.g buying car may be posted to motor vehicle
Where is a credit purchase recorded
It will be recorded as a payable in our books as it hasn’t been paid for yet.
As the non current asset isn’t part of our normal transactions it is recorded as non trade payable
What would the debit and credit be for a cash purchase
Debit non current asset
Credit trade payable
What is included in capital expenditure
Any costa other than the basic cost. Any costa which are directly attributed to the asset purchase as well as delivery costs
Are repeated costs included in capital or revenue expenditure
Repeated = revenue
What types of costs related to the asset are included in capital expenditure
- purchase price of the asset
- alterations costs to the asset usable
- legal fees with purchasing the asset
- non refundable taxes and duties
- site preparation costs
- delivery costs
- installation costs
- testing costs
What kind of costs are revenue expenditure
Costs which relate to one accounting period should be treated as revenue expenditure e.g repairs, maintenance, cleaning, insurance and fuel
When would VAT be capitalised
If the business is not VAT registered
How is VAT treated for VAT registered businesses
Not included in the costs of the non current asset as the business can claim the VAT back. Therefore VAT is a real costs to them so
What is a non current asset register and what can be expected to be found on there
Used for internal purposes
- description/ serial number
- acquisition date
- original date
- depreciation
- carrying amount
- disposal date
- disposal proceeds
What are the 2 important controls in the reconciliation of non current asset registers
Physical reconciliation of assets and reconciling to the general ledger
What is physical reconciliation of assets on the non current asset register
This involves taking items on the NCAR and finding the physical asset which checks that the business is still using the asset and that the details are still valid
What is reconciling to the general ledger on the non current asset register
Involves checking all the costs and depreciation figures are correctly recorded in the general ledger and that the value of the assets is the same as the NCAR as in the accounts
