Chapter 8 - NCA and depreciation

Question 1

What are the two types of non current assets?

Answer 1

1. Tangible NCA → physical assets _{e.g machinary + buildings}
2. Intagible NCA → non physical assets _{e.g goodwill}

Question 2

Define carrying amount and give the equation for it

Answer 2

• The value of the asset at the point it is sold basedon the estimated values
• Cost of non-curent asset - accumulated depreciation

Question 3

What are the 2 methods to calculate depreciation?

Answer 3

1. Straight line method → spreads costs evenly per month.

• Depreciation costs for 1 year = (cost - residual value) / usefull life
• _or X% x cash

2. Reducing balance method → changes years (charge full year depreciation when asset is purhased, no depresiation the year asset issold)
   * Depreciation charges = X% x carring amount

Question 4

Using the infomation bellow answer the folowing question…

1. What is the total depriciation for the year ending 31 october 20X6?
2. What is the carrying amount of the oven at 31 october 20X6?
3. What is the carrying amount of the mini bus at 31 october 20X6?

Answer 4

Question 5

Answer 5

A new depreciation needs to be calculated at the end of every year

Question 6

Answer 6

Question 7

Answer 7

Question 8

Irrispective of the method used to calculate depreciation what is debited and credited?

Answer 8

• Dr depreciation expense (SPL)
• Cr Accumulated depreciation (SFP)

Question 9

How do thethe IAS 16 PPE try toreduce manipluation of depreciation?

Answer 9

• The depreciation method should be reviewed at the end of each year and chaged if needed.
• The residual value and useful life should be reviewed each year end and changed if neede.
• If changes are made the carrying amount of the asser is then depreciated using new estimates.

Question 10

1. What is subsequent depreciation?
2. How i it calculated?

Answer 10

1. Depreciation calculated once we have changed an estimate.
2. (Carrying amount at date estimate changed - residual value) / remaing usefull life

Question 11

How is subsequent depreciation calculated if the reducing balance is changed?

Answer 11

depreciation = % x carrying amount at date estimate changed

Question 12

Answer 12

Question 13

What is disposal through part exchange?

Answer 13

Trading in an old asser to recive a new asset at a lower price.

• Value off old asset (PEA) + cash paid = new asset

Question 14

1. What is a non current asset register?
2. What are any differnces normally due to?

Answer 14

1. A list of all non current assets → Broken down by asset type and location
2. Computer errors, asset stolen, new asset not recognised by register etc

Question 15

1. What are inatangibles non current assets?
2. Where are they found on the SPL?
3. What is amortisatiom?

Answer 15

1. Non-current assets with no physical form → copyrights, licences, goodwill
2. Under NCA
3. Thename goven to the depreciation of intangibles

Question 16

What costs are not included when calculating depreciation?

Answer 16

• Annual costs → licencing and insurance
• VAT input tax → (vehicle tax is not depriciated unless it is a car purchased for business travel)

Question 17

You are provided with…

• Orginl carrying amount before purchase or sale of NCA
• The cost of a NCA
• Sales price of NCA
• Profit or loss on disposal

How would you calculate the balance recorded on the asset register?

Answer 17

Total carrying amount + cost of NCA - sale price of NCA - loss on disposal + loss on disposal