Non-current assets, depreciation and impairment

Question 1

what does the cost of a non-current asset include

Answer 1

any amount incurred to acquire the asset + bring it into working condition

Includes capital expenditure such as purchase price, delivery costs, legal fees, expenditure which enhances asset.
Does not include revenue expenditure such as repairs, renewals + repainting

Question 2

what is the double entry for capitalising

Answer 2

DR non-current assets
CR cash/bank

Question 3

what is the double entry for revenue expenditure

Answer 3

DR expenses
CR bank/cash

Question 4

depreciation is.. (IAS 16PPE)

Answer 4

the systematic allocation of the depreciable amount of an asset over its useful life

Question 5

Depreciable amount is… (IAS 16 PPE)

Answer 5

the cost of an asset (other amount substituted for cost) - residual value

Question 6

residual value is..

Answer 6

the estimated amount an entity would currently obtain from disposing of the asset as the end of its useful life

Question 7

useful life is..

Answer 7

the period when an asset is expected to be available for use by an entity

Question 8

depreciation is not meant to..

Answer 8

• show the asset at its current value in the SFP
• provide a fund for the replacement of the asset

Question 9

what are the two methods of depreciation

Answer 9

• straight line method
• reducing balancing method

Question 10

what is the equation for straight line method?

Answer 10

• (cost - residual value)/useful life
  OR
• X% x cost (when there is no residual value)

Question 11

what is the equation for reducing balance?

Answer 11

depreciation charge= X% x Carrying amount

Question 12

Recording depreciation

Answer 12

DR depreciation expense
CR accumulated depreciation

Question 13

Does land and buildings require depreciation

Answer 13

Land does not require depreciation but buildings does

Question 14

what is carrying amount

Answer 14

original cost of the non-current asset - accumulated depreciation on the asset

Question 15

profit/loss on disposals =

Answer 15

proceeds - carrying amount

Question 16

what is the double entry for depreciation

Answer 16

DR depreciation expense (P&L)
CR accumulated depreciation (SFP)

Question 17

carrying amount

Answer 17

cost - accumulated depreciation

Question 18

what is the process for disposal

Answer 18

1. remove original cost of non-current asset
2. remove accumulated depreciation of non current asset
3. record cash proceeds
4. balance off disposals account to find profit or loss

Question 19

what is the double entry for recording a part exchange allowance

Answer 19

DR non current assets
CR disposals

Question 20

what is the double entry for an impairment

Answer 20

DR impairment expense
CR accumulated depreciation

Question 21

what is the equation for impairment

Answer 21

carrying amount - recoverable amount

Question 22

true or false - internally generated goodwill should be capitalised

Question 23

when do we have to adjust for an impairment?

Answer 23

when recoverable amount is less than carrying amount

Question 24

how do we calculate the recoverable amount?

Answer 24

greater of
- fair value less costs to sell
- value in use

Question 25

how do we calculate profit/loss on part exhange

Answer 25

part exchange - carrying amount at disposal