Chapter 7/8- Non - Current Assets: Acquisition and Depreciation Flashcards
What is a non current asset?
A resource acquired by an entity with the intention of using them to earn money
Not normally acquired for resale
Can be intangible or tangible
What are some examples of tangible non current assets?
Land, buildings, Motor vehicles, machinery etc
What are some examples of intangible non-current assets?
Goodwill, development costs, licences and patents
What is asset expenditure?
Expenditure likely to increase the future earning capability of the entity
What are expenses?
Day to day running costs E.g., maintenance, repairs, replacement parts etc
Where do asset expenditure go?
Statement of financial position
Where do expenses go?
Statement of profit or loss
What is depreciation?
The systematic allocation of the depreciable amount of a non-current asset over its useful life
What does depreciable amount equal?
Carrying amount - residual value
What are the factors to be taken into account in assessing depreciation?
Cost or valuation of asset, expected useful economic life to the business and estimated residual value at end of life
How do you account for a non current asset?
Dr non current asset - cost
Cr Cash/supplier
What is the year end adjustment made for depreciation?
Dr depreciation expense account P&L
Cr non current asset - acc deprn
What is the straight line method equations?
Cost - residual value / useful economic life
Which depreciation method results in higher depreciation in early years?
Reducing balance
What is the first accounting step when disposing of non current assets?
Dr disposals account
Cr non current asset account
With original cost
What is the second accounting step when disposing of non current assets?
Dr non current asset accumulated depn
Cr disposals Account
With accumulated depreciation to date
What is the third accounting step when disposing of non current assets?
Dr cash/bank
Cr disposals
With proceeds of sale
What is the third (b) accounting step when disposing of non current assets?
Dr non current asset
Cr disposals
With trade in value of old asset if part exchange
What is the fourth accounting step when disposing of non current assets?
Dr disposals
Cr profit or loss - income
With profit on sale
What is the fourth accounting step when disposing of non current assets if loss?
Dr profit or loss - expense
Cr disposals
With loss on sale
What is the reason for revaluation?
To reflect the current worth of assets on the statement of financial position
The difference between revalued amount and the previous net book value is recognised as what?
As an item of other comprehensive income and is credited to a revaluation surplus with equity in the SFP
What is the double entry for revaluation?
Dr non current asset
Cr revaluation surplus
With increase in cost
Dr accumulated depreciation
Cr revaluation surplus
With removal of acc depn to date
What is the double entry for excess depreciation?
Dr revaluation surplus
Cr retained earnings
With excess depreciation for the year
The initial measurement of the value of a tangible non- current asset should be what?
The cost, including directly attributable costs of ‘bringing the asset to the location and condition in the manner intended by management’
What is the definition of an intangible asset?
Is an identifiable non-monetary asset without physical substance
What are the steps to dispose using a part exchange agreeement?
- Remove the asset
- Record the part exchange allowance and acquisition of replacement asset
- Calculate the profit or loss on disposal
What is the cost model?
Assets are held at their initial cost less accumulated depreciation
What is the revaluation model?
Depreciation is still charged
All assets in the same class must be held under this model
Revaluations should be made regularly so that the carrying value of assets are not materially different to their fair value
What is the double entry for step 1 of disposal of a revalued asset?
Remove cost of non current asset
Dr disposal acc
Cr non current asset cost accoutn
What is the double entry for step 2 of disposal of a revalued asset?
Remove accumulated depreciation
Dr accumulated depreciation
Cr disposal account
What is the double entry for step 3 of disposal of a revalued asset?
Account for proceeds
Dr cash
Cr disposal account
What is the double entry for step 4 of disposal of a revalued asset?
Determine profit or loss on disposal
Dr disposal acc
Cr profit on disposal
Dr loss on disposal
Cr disposal acc
What is the double entry for step 5 of disposal of a revalued asset?
Clear the revaluation surplus account
Dr revaluation surplus
Cr retained earnings
