Chapter 8 - Non-Current Assets, Fixed Assets And Depreciation Flashcards
- Understand the differences between current and non-current assets. - Understand the reasons for depreciating fixed assets. - Understand the most commonly used methods for depreciating assets. - Understand the effects of depreciation on the statement of financial position. - Understand the impact of depreciation on the income statement and the cash flow statement and why these effects are different. - Understand how gains and losses on the sale of fixed assets arise and their impact on the
Difference between asset and expense:
-An asset relates to present or future benefits.
An expense relates to past or expired benefits.
Key Concept: International Accounting Standards - definition of an asset
An asset is a resource controlled by an enterprise as a result of past events from which future economic benefits are expected to flow to the entity.
Key Concept: Current asset
A current asset is one which is either part of the operating cycle of the enterprise or is likely to be realized in the form of cash within one year.
Key Concept: Fixed asset
An asset that is acquired for the purposes of use within the business and is likely to be used by the business for a considerable period of time.
Key Concept: Income
Income is that amount which an individual can consume and still be as well off at the end of the period as he or she was at the start of the period.
Key Concept: Materiality
Broadly, an item can be said to be material if its non-disclosure would lead to the accounts being misleading in some way.
Key Concept: Depreciation (amortization)
The systematic allocation of the depreciable amount of an asset over its useful life.
Key Concept: Depreciable amount
The cost of an asset, or other amount substituted for cost, less its residual value.
Key Concept: Carrying amount (Buchwert)
This is the amount at which an asset is recognized after deducting any accumulated depreciation and accumulated impairment losses.
What is the purpose of depreciation?
Broadly matching revenue with cost incurred in earning that revenue. The chapter also discusses the International accounting standard and the idea of spreading the original cost over the useful life of the asset and depreciation as a measure of the wearing out of an asset.
What factors need to be taken into account in determining the useful life of an asset?
Technological advances, past experience, the factors that cause the asset to wear out.
