Non-current Assets and Depreciation

Question 1

What is capital expenditure?

Answer 1

An asset that is expected to be held for more than one accounting period

Question 2

Double entry for capital expenditure

Answer 2

Dr NCA asset Cr cash/ trade payable

Question 3

What does the cost of an NCA include?

Answer 3

All directly attributable amounts to bring it to present location and condition:

purchase price
delivery cost
stamp duty and import duty (irrecoverable VAT on cars)
site preparation
installation and assembly
professional fees
testing costs
subsequent costs that enhance the asset like major improvements or overhaul

Question 4

What is not included in cost of NCAs?

Answer 4

general overheads
staff training costs
fuel for cars
license fees
repairs and maintenance

Question 5

What is depreciation?

Answer 5

The writing off of an asset’s cost over its useful life. It matches the cost of the asset to the period the business expects to gain the benefits from using it

Question 6

What asset is not depreciated?

Answer 6

Land

Question 7

What is residual value?

Answer 7

Estimated scrap value at the end of its useful life. Always assume 0 unless told.

Question 8

depreciable amount =

Answer 8

cost - residual value

Question 9

carrying amount =

Answer 9

cost - accumulated dep’n

Question 10

Straight line dep’n

Answer 10

(cost - residual value)/useful life (months/years)

Question 11

Dep’n with additions and disposals

Answer 11

Assets held all year: (b/f - disposals)%
Additions: amount%fraction of time had until y/e
Disposals: amount%*fraction of time had from start of year

Add all together

Question 12

Reducing balance dep’n

Answer 12

carrying value = cost*(1-%)^years depreciating
accumulated dep’n = cost - carrying value

Question 13

What happens to VAT for dep’n?

Answer 13

Take VAT out for all purchases except cars

Question 14

What is subsequent expenditure?

Answer 14

Expenditure incurred to enhance an asset after its initial purchase. It is added to the asset’s cost and depreciated over the remaining useful life.

Question 15

When do we change the useful life?

Answer 15

If there is a change to residual value or useful life we just change it from that point onwards.

Question 16

What is impairment loss?

Answer 16

A permanent fall in value.

Question 17

What is the recoverable amount?

Answer 17

higher of fair value-cost to sell and value in use

Question 18

Indicators of impairment loss

Answer 18

Repair costs are huge
there is newer, better technology
rise in interest rates

Question 19

Double entry to account for dep’n

Answer 19

Dr depreciation expense Cr accumulated dep’n

Question 20

Profit/ loss on disposal

Answer 20

net disposal proceeds - carrying value
profit - Dr other income, loss - Cr expenses

Question 21

Steps for disposal and their double entries

Answer 21

Remove cost of disposal from cost ledger
Dr disposals account, Cr NCA cost amount
Remove accumulated dep’n from acc dep’n ledger
Dr accumulated dep’n account, Cr disposals account
Account for disposals proceeds
Dr cash, Cr disposals account

Question 22

Part exchange instead of disposal

Answer 22

Replace cash with trade in value - Dr new asset cost account, Cr disposals account
Then remaining cash paid - Dr new asset cost, Cr cash

Question 23

What is the asset register and what is included?

Answer 23

A list of NCAs to check the completeness and accuracy of ledgers and check for stolen, damaged and new assets.

Includes reference no.
Location
Purchase date
Dep’n method
Estimated useful life
Residual value

Question 24

What are intangible assets? Examples

Answer 24

Assets with no physical substance, must be amortised from directly attributable cost.
Goodwill, licenses, patents, brands

Question 25

What goodwill is/isn’t recognised as an asset?

Answer 25

Purchased goodwill is recognised in acquirer’s account, internally generated goodwill not recognised.

Question 26

Double entry for intangible assets

Answer 26

Dr expense or intangible asset Cr cash

Question 27

How do we account for research and development costs?

Answer 27

Research is expensed to profit or loss
Development is capitalised as an intangible asset in SFP and amortised.