Non-current Assets and Depreciation Flashcards
What is capital expenditure?
An asset that is expected to be held for more than one accounting period
Double entry for capital expenditure
Dr NCA asset Cr cash/ trade payable
What does the cost of an NCA include?
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
What is not included in cost of NCAs?
general overheads
staff training costs
fuel for cars
license fees
repairs and maintenance
What is depreciation?
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
What asset is not depreciated?
Land
What is residual value?
Estimated scrap value at the end of its useful life. Always assume 0 unless told.
depreciable amount =
cost - residual value
carrying amount =
cost - accumulated dep’n
Straight line dep’n
(cost - residual value)/useful life (months/years)
Dep’n with additions and disposals
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
Reducing balance dep’n
carrying value = cost*(1-%)^years depreciating
accumulated dep’n = cost - carrying value
What happens to VAT for dep’n?
Take VAT out for all purchases except cars
What is subsequent expenditure?
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.
When do we change the useful life?
If there is a change to residual value or useful life we just change it from that point onwards.
What is impairment loss?
A permanent fall in value.
What is the recoverable amount?
higher of fair value-cost to sell and value in use
Indicators of impairment loss
Repair costs are huge
there is newer, better technology
rise in interest rates
Double entry to account for dep’n
Dr depreciation expense Cr accumulated dep’n
Profit/ loss on disposal
net disposal proceeds - carrying value
profit - Dr other income, loss - Cr expenses
Steps for disposal and their double entries
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
Part exchange instead of disposal
Replace cash with trade in value - Dr new asset cost account, Cr disposals account
Then remaining cash paid - Dr new asset cost, Cr cash
What is the asset register and what is included?
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
What are intangible assets? Examples
Assets with no physical substance, must be amortised from directly attributable cost.
Goodwill, licenses, patents, brands
What goodwill is/isn’t recognised as an asset?
Purchased goodwill is recognised in acquirer’s account, internally generated goodwill not recognised.
Double entry for intangible assets
Dr expense or intangible asset Cr cash
How do we account for research and development costs?
Research is expensed to profit or loss
Development is capitalised as an intangible asset in SFP and amortised.
