Non-current assets, depreciation and impairment Flashcards
what does the cost of a non-current asset include
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
what is the double entry for capitalising
DR non-current assets
CR cash/bank
what is the double entry for revenue expenditure
DR expenses
CR bank/cash
depreciation is.. (IAS 16PPE)
the systematic allocation of the depreciable amount of an asset over its useful life
Depreciable amount is… (IAS 16 PPE)
the cost of an asset (other amount substituted for cost) - residual value
residual value is..
the estimated amount an entity would currently obtain from disposing of the asset as the end of its useful life
useful life is..
the period when an asset is expected to be available for use by an entity
depreciation is not meant to..
- show the asset at its current value in the SFP
- provide a fund for the replacement of the asset
what are the two methods of depreciation
- straight line method
- reducing balancing method
what is the equation for straight line method?
- (cost - residual value)/useful life
OR - X% x cost (when there is no residual value)
what is the equation for reducing balance?
depreciation charge= X% x Carrying amount
Recording depreciation
DR depreciation expense
CR accumulated depreciation
Does land and buildings require depreciation
Land does not require depreciation but buildings does
what is carrying amount
original cost of the non-current asset - accumulated depreciation on the asset
profit/loss on disposals =
proceeds - carrying amount
what is the double entry for depreciation
DR depreciation expense (P&L)
CR accumulated depreciation (SFP)
carrying amount
cost - accumulated depreciation
what is the process for disposal
- remove original cost of non-current asset
- remove accumulated depreciation of non current asset
- record cash proceeds
- balance off disposals account to find profit or loss
what is the double entry for recording a part exchange allowance
DR non current assets
CR disposals
what is the double entry for an impairment
DR impairment expense
CR accumulated depreciation
what is the equation for impairment
carrying amount - recoverable amount
true or false - internally generated goodwill should be capitalised
when do we have to adjust for an impairment?
when recoverable amount is less than carrying amount
how do we calculate the recoverable amount?
greater of
- fair value less costs to sell
- value in use
how do we calculate profit/loss on part exhange
part exchange - carrying amount at disposal
