Non-Current Assets & Depreciation

Question 1

Characteristics of tangible non-current asset

Answer 1

• Used to drive future economic benefits for the company in increased revenue or decreased costs
• Lead to capitalisation of directly attributable costs
• Depreciate over time
• Hold residual or scrap value at the end of the asset’s useful life

Question 2

Is interest on the loan used to finance the acquisition of non-current assets capitalised?

YES/NO

Answer 2

YES but only for qualifying asset

takes a substantial period of time to get ready for use or sale

Question 3

Is testing cost on whether the asset is functioning properly capitalised ?

YES/NO

Answer 3

YES

Question 4

At the end of an asset useful life, the carrying amount is similar under both SLM & RBM

YES/NO

Answer 4

YES

Regardless of which method, business starts and ends at the same position with the same depreciable amount being charged over the useful life

Question 5

What is non current asset register ?

Answer 5

Memorandum document where each asset is listed, including information on all the activities relating to the asset.

Question 6

Items that should be included in the SOFP/ Notes for SOFP for non-current asset

Answer 6

1) The gross carrying amount/cost & accumulated depreciation at the start & end of year

2) Depreciation charged for the period

3) Classified based on appropriate basis

Question 7

Explain what happen if company uses break-up basis ?

Answer 7

• Assets may be sold at less than their value in SOFP (an entity may have a use for a particular machine, it may be scrap metal to another entity)
• Property may be sold for a value above that shown in SOFP
• If the entire inventory is sold at once then it will not be sold for as much money
  as if it were sold in the normal way
• Some customers may decide not to pay the entity if it is known the entity is
  about to go into liquidation

Question 8

Under RBM, scrap value is ignored since the NBV under this method will never reach zero

YES/NO

Answer 8

YES

it always calculates depreciation as a percentage of the remaining value. No matter how small the number gets, there’s always something left

Question 9

If an asset is scrapped when it was fully depreciated, what impact will it have on profit?

Answer 9

No impact.

Because if an asset have been fully depreciated, the net book value/CA is nil.

No profit nor loss.

No impact on profit.

Question 10

Double entry for profit on disposal of NCA

Answer 10

Dr Disposal A/c
Cr SOPL

Question 11

Is residual value an estimation?

Answer 11

YES

Estimation of how much the asset would worth at the end of useful life. Does NOT represent guaranteed proceed from disposal/scrapping it