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Principles Of Accounting > Lecture 4 > Flashcards

Lecture 4 Flashcards

1
Q

What is a TANGIBLE NON-CURRENT asset?

A

Physical substance
Held for production, supply of goods or services, rental, admin activities
On a continuing basis

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2
Q

What are some examples of TANGIBLE NON-CURRENT assets?

A

Property
Plant
Equipment

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3
Q

What are INTANGIBLE NON-CURRENT assets?

A

No physical substance
Investments held long term

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4
Q

What are some examples of an INTANGIBLE NON-CURRENT asset?

A

Patents
Trademarks
Development costs
Goodwill

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5
Q

What is the NET Book Value?

A

Cost minus accumulated depreciation

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6
Q

What is the book value?

A

The cost of the item before depreciation

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7
Q

What does it mean if a non-current asset is revalued?

A

A valuation above the cost is given to the asset (E.g. land and buildings)
Uses the concept of fair value

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8
Q

What is fair value?

A

The amount that an asset could be sold for that’s fair to both the buyer and the seller.

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9
Q

When would the fair value be revalued annually?

A

If it is relatively volatile (liable to change rapidly and unpredictably)

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10
Q

When would the fair value be revalued every 3-5 years?

A

If it’s not very/less volatile (liable to change rapidly and unpredictably)

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11
Q

How would you calculate the cost of a fixed asset at acquisition (when buying/obtaining an asset)?

A

Purchase price of the asset plus the cost of preparing it for use (i.e. bringing the asset to working condition)
Legal costs of acquisition and installation and commissioning costs.

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12
Q

What effects can improvement expenditure (investing in improvements) have on the asset?

A

May extend the asset’s annual production capacity
Increase it’s economic life
Reduce associated running cots
Improve the quality of it’s output

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13
Q

What are some examples of costs to improve the asset’s original condition?

A

Extension to a building
Rebuilding shop fittings to attract new types of customers

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14
Q

Do improvement costs add to the cost of the non-current asset?

A

Yes

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15
Q

Will improvement costs depreciate?

A

Yes (over the remainder of its useful life)

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16
Q

Do costs that are incurred to maintain, repair or restore the asset to its original condition add to the cost of the non-current asset??

A

NO
These are treated as EXPENSES

17
Q

What are some examples of costs incurred to maintain, repair or restore an asset to its original condition?

A

Replacing a roof damaged in storm
Replacing engine in bus

18
Q

What is the purpose of accounting depreciation?

A

To spread the cost of a fixed asset over its expected useful life

19
Q

What is depreciation?

A

A reduction in the value of an asset over time
A method of allocating cost

20
Q

Does NBV represent the asset’s market value?

A

No.

21
Q

What are some examples of tangible non-current assets that can/will depreciate?

A

Machinery
Motor vehicles
Buildings

22
Q

What effect does depreciation have on the accounting equation?

A

Assets decrease
OI decrease (expense)

23
Q

What is the simple equation to calculate depreciation?

A

Total depreciation = cost - residual value (aka scrap value)

24
Q

What is residual/scrap value?

A

When something can’t be used anymore, so you sell for scraps.

25
Q

How is yearly depreciation showed on an income statement?

A

a portion of the cost of the fixed asset is deducted from the balance sheet value, then that portion is matched against the revenues of that year on the income statement.

26
Q

How do you show accumulated depreciation on the statement of financial position?

A

The depreciation of each year is added to the depreciation of earlier years to arrive at the accumulated depreciation

27
Q

What is the equation for the straight line method?

A

(Cost - residual value) / number of expected years of use
Gives you the depreciation each year equally
(E.g if total depreciation over 4 years is $10k, then this method will show annual depreciation as $2,500)

28
Q

How else can deprecation be expressed?

A

As a percentage of the original cost

29
Q

Why is it called the straight line method? (Probs don’t need to know this but i just included it for bants)

A

A graph of the NBV of the asset at the end of each year produces a straight line

30
Q

What is the formula for the reducing-balance method?

A

[1- ^n√(residual value÷cost)] x 100 where n= number of years of useful life

31
Q

What do you do with the percentage after its been calculated to find the depreciation of each year?

A

For example, if the percentage is 60% and the original cost was €10,000, you would find 60% of the €10,000 which is €4,000
€10,000 - €4,000 = €6,000 (first year)
Then find 60% of €6,000 which is €3,600
€6,000 - €3,600 = €2,400 (second year)
And so on for however many years are stated in the question

32
Q

Calculate the rate of depreciation if n= 5 years, cost = €1,000, residual value = €30

A

Answer is approx 50%

33
Q

Using the straight-line method, calculate the annual depreciation if
A company purchased a van for $60,000 and started to trade.
The manager estimated that the van will be used for 3 years and there is an estimated residual value of $6,000.

A

($60,000 - $6,000) / 3 = $18,000 per year

34
Q

How would you calculate the average useful life of plane and equipment?
Not sure if we need to know this tbh

A

Cost at year end (31.12)/depreciation for the year

35
Q

How would you calculate the proportion of cost that has been depreciated?
Not sure if we need to know this tbh

A

Depreciation at the year end /cost at the year end

36
Q

How would you calculate the average age of plant and equipment?
Not sure if we need to know this tbh

A

Average useful life x proportion of cost depreciated

37
Q

How would you calculate how efficiently assets are being used? (Non current asset usage)
Not sure if we need to know this tbh

A

Revenue (sales) / year end NBV of NCA = ____ times a year

38
Q

A capital expenditure result in an increase to which account?

A

An asset account

Principles Of Accounting (10 decks)

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