Chapter 7/8- Non - Current Assets: Acquisition and Depreciation

Question 1

What is a non current asset?

Answer 1

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

Question 2

What are some examples of tangible non current assets?

Answer 2

Land, buildings, Motor vehicles, machinery etc

Question 3

What are some examples of intangible non-current assets?

Answer 3

Goodwill, development costs, licences and patents

Question 4

What is asset expenditure?

Answer 4

Expenditure likely to increase the future earning capability of the entity

Question 5

What are expenses?

Answer 5

Day to day running costs E.g., maintenance, repairs, replacement parts etc

Question 6

Where do asset expenditure go?

Answer 6

Statement of financial position

Question 7

Where do expenses go?

Answer 7

Statement of profit or loss

Question 8

What is depreciation?

Answer 8

The systematic allocation of the depreciable amount of a non-current asset over its useful life

Question 9

What does depreciable amount equal?

Answer 9

Carrying amount - residual value

Question 10

What are the factors to be taken into account in assessing depreciation?

Answer 10

Cost or valuation of asset, expected useful economic life to the business and estimated residual value at end of life

Question 11

How do you account for a non current asset?

Answer 11

Dr non current asset - cost
Cr Cash/supplier

Question 12

What is the year end adjustment made for depreciation?

Answer 12

Dr depreciation expense account P&L
Cr non current asset - acc deprn

Question 13

What is the straight line method equations?

Answer 13

Cost - residual value / useful economic life

Question 14

Which depreciation method results in higher depreciation in early years?

Answer 14

Reducing balance

Question 15

What is the first accounting step when disposing of non current assets?

Answer 15

Dr disposals account
Cr non current asset account
With original cost

Question 16

What is the second accounting step when disposing of non current assets?

Answer 16

Dr non current asset accumulated depn
Cr disposals Account
With accumulated depreciation to date

Question 17

What is the third accounting step when disposing of non current assets?

Answer 17

Dr cash/bank
Cr disposals
With proceeds of sale

Question 18

What is the third (b) accounting step when disposing of non current assets?

Answer 18

Dr non current asset
Cr disposals
With trade in value of old asset if part exchange

Question 19

What is the fourth accounting step when disposing of non current assets?

Answer 19

Dr disposals
Cr profit or loss - income
With profit on sale

Question 20

What is the fourth accounting step when disposing of non current assets if loss?

Answer 20

Dr profit or loss - expense
Cr disposals
With loss on sale

Question 21

What is the reason for revaluation?

Answer 21

To reflect the current worth of assets on the statement of financial position

Question 22

The difference between revalued amount and the previous net book value is recognised as what?

Answer 22

As an item of other comprehensive income and is credited to a revaluation surplus with equity in the SFP

Question 23

What is the double entry for revaluation?

Answer 23

Dr non current asset
Cr revaluation surplus
With increase in cost

Dr accumulated depreciation
Cr revaluation surplus
With removal of acc depn to date

Question 24

What is the double entry for excess depreciation?

Answer 24

Dr revaluation surplus
Cr retained earnings
With excess depreciation for the year

Question 25

The initial measurement of the value of a tangible non- current asset should be what?

Answer 25

The cost, including directly attributable costs of ‘bringing the asset to the location and condition in the manner intended by management’

Question 26

What is the definition of an intangible asset?

Answer 26

Is an identifiable non-monetary asset without physical substance

Question 27

What are the steps to dispose using a part exchange agreeement?

Answer 27

1. Remove the asset
2. Record the part exchange allowance and acquisition of replacement asset
3. Calculate the profit or loss on disposal

Question 28

What is the cost model?

Answer 28

Assets are held at their initial cost less accumulated depreciation

Question 29

What is the revaluation model?

Answer 29

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

Question 30

What is the double entry for step 1 of disposal of a revalued asset?

Answer 30

Remove cost of non current asset
Dr disposal acc
Cr non current asset cost accoutn

Question 31

What is the double entry for step 2 of disposal of a revalued asset?

Answer 31

Remove accumulated depreciation
Dr accumulated depreciation
Cr disposal account

Question 32

What is the double entry for step 3 of disposal of a revalued asset?

Answer 32

Account for proceeds
Dr cash
Cr disposal account

Question 33

What is the double entry for step 4 of disposal of a revalued asset?

Answer 33

Determine profit or loss on disposal
Dr disposal acc
Cr profit on disposal

Dr loss on disposal
Cr disposal acc

Question 34

What is the double entry for step 5 of disposal of a revalued asset?

Answer 34

Clear the revaluation surplus account
Dr revaluation surplus
Cr retained earnings