NCA's Flashcards
What is an asset
The definition of an asset has 3 components.
- A resource controlled by an entity,
- as a result of past events,
- from which future economic benefits are expected to arise.
What is a non-current asset?
A non-current asset is an asset that is not intended for resale and is expected to be used for more than 1 year. If an asset is intended for resale it is called Inventory and is a current asset.
Which costs do you include when recording the purchase of a non-current asset?
All necessary costs incurred to get the asset delivered, installed and ready to use should be included in the cost-base of a non-current asset.
What is depreciation?
Depreciation is the allocation of a non-current assets cost, over its useful life. It helps to match the expenses and revenues from an asset into the same period.
What is the difference between Depreciation Expense and Accumulated Depreciation?
Depreciation expense is the periodic expense associated with using an asset. It is an expense account and shows up on the Income Statement.
Accumulated depreciation is a contra asset – it lowers the net value of the asset that has been depreciated. It is calculated by adding up (accumulating) all the prior year’s depreciation expenses for a particular asset.
How do you calculate the ‘Carrying Amount’ of an asset?
Carrying Amount = Cost of an asset – Accumulated Depreciation for the asset.
What are the three methods of calculating depreciation?
Straight line depreciation:
Reducing Balance:
Units of use:
What are the steps involved in journalizing the sale of a non-current asset?
- Update the depreciation on the asset (potentially a partial year or month).
- Calculate the carrying amount(Cost – Acc Dep) of the asset.
- If the sale price is greater than the carrying amount, the difference is recorded as a Cr Gain on Sale. If the sale price is less than the carrying amount, the difference is recorded as a Dr Loss on Sale.
