Non Current Assets

Question 1

The cost of a non current asset

Answer 1

The cost of an asset includes all costs incurred in order to bring the asset into a position, condition and location ready for use that will provide a benefit for the life of the asset, eg delivery, installation etc

Question 2

The reducing balance method of depreciation

Answer 2

• Assumes that the asset contributes more to revenue at the start of it’s life, and less as it ages (most productive at the start and less as it ages due to moving parts which causes breakdowns, maintenance etc)
• It calculated depreciation expense as a percentage of the assets carrying value

Question 3

Carrying value

Answer 3

HC - ACCUM DEPN

the value of the NCA that is yet to be consumed plus any residual value

Question 4

The straight line method of depreciation

Answer 4

The straight line method should be used if

• The asset contributes evenly to revenue
• It’s cost is consumed evenly over it’s life

Question 5

RBM should be used if:

Answer 5

• the asset contributes more to revenue at the start of it’s useful life
• it’s cost is consumed more at the start of it’s life and less as it ages

Question 6

Consistency and comparability

Answer 6

Consistency demands that depreciation methods are not changed from period to period.
This ensures comparability in the reports.

Question 7

RECORDING THE DISPOSAL OF A NON CURRENT ASSET involves 3 steps

Answer 7

• transferring the CARRYING VALUE of the asset
• recording the proceeds from the disposal
• transferring the profit or loss on disposal

Question 8

Reason for loss on disposal of NCA

Answer 8

• occurs when the carrying value of the asset is more than the proceeds from it’s sale
• the value of the asset could be too high due to it been under depreciated as a result of the estimated residual value been too high (damaged or outdated) / useful life too high

Question 9

Reason for profit on disposal of NCA

Answer 9

• occurs when the carrying value of the asset is less than the proceeds from it’s sale
• the value of the asset could be too low due to it been over depreciated as a result of the estimated residual value been too low (asset in better condition than anticipated or high demand) / useful life been too low

Question 10

Order of general ledger

Eg

Answer 10

Disposal of equipment
    Equipment
Accum. Dep'n of Equipment
    Disposal of equipment 
Sundry creditor-...
    Disposal of equipment
Loss on disposal of equipment
    Disposal of equipment