Non-current Assets And Depreciation

Question 1

Capital vs revenue transactions

Answer 1

Capital - expenditure on the purchase of long term assets (used in a business for >1) or expenditure or expenditure leading to an improvement in earning capacity. Dr non-current asset Cr cash (paid immediately) liability (paid in future)
Revenue - expenditure on all transactions and ones that relate to day to day running costs of the business. Dr expenses Cr cash/ liability

Question 2

The cost of a non-current asset

Answer 2

Includes everything spent on buying the asset including capital expenditure e.g:

• purchase price
• delivery cost
• legal fees
• subsequent expenditure which enhances the asset

Question 3

Methods of depreciation

Answer 3

Straight line - (cost - residual value) / useful life. Assumed it it charged monthly so only charge for however long in the year they own it
Reducing balance method - X% x carrying amount

Question 4

The double entry for decpreciation

Answer 4

Dr Depreciation expense (statement of P or L)
Cr Accumulated depreciation (statement of financial position)

Cost - accumulated depreciation = carrying amount

Question 5

Changing the depreciation rate values

Answer 5

Straight line - (value at change - RV) / remaining UEL

Reducing balance - new% x value at change

Question 6

Disposal(sale) of a non current asset

Answer 6

If a value is sold for more than its carrying amount then its a profit, if sold for less then its a loss

Question 7

Accounting for the disposal of a non current asset

Answer 7

1. Remove original cost of asset from ‘non-current asset’ account
2. Remove accumulated depreciation of the asset from ‘acc dep’ account
3. Record cash from sale
4. Balance off disposals account to identify profit or loss

Question 8

Disposal through part exchange agreement

Answer 8

Same as before just included the part exchange value as part of the overall value paid for the new asset

Question 9

Impairment of non-current assets

Answer 9

An impairment means that the recoverable amount of an asset is less then its carrying amount
Recoverable amount = greater of sale value - costs to sell or value in use

Question 10

Non current asset register

Answer 10

A list of all non-current assets of a business to keep track of what is owned and where

Question 11

Intangible non current assets

Answer 11

Assets held for the long term which have no physical form e.g patents, copyrights, licences, goodwill
Goodwill - the value of the reputation of the business - not recorded on the financial statements unless it has been purchased in the acquisition of another business