Theory: Non-current Assets Flashcards
Define Revenue Expenditure
Is any cost relating to non-current assets that is incurred to maintain, but not to extend, the useful life of the asset
Depreciation
Is the allocation of the cost of an assets to the accounting periods in which it is expected that the asset will contribute to the production of revenue
Amortisation
Is similar to depreciation, however it is used to describe intangible non-current assets and natural resources
Describe the Straight Line Method
The allocation of the cost of the asset is sometimes judged as being constant (or uniform) over the life of the asset with uniform use throughout a period are buildings and furniture. In these circumstances, the SLM is ideal due to its nature & simplicity
Reducing Balance Method
Allocation of the cost of an asset using RBM will result in a decreased depreciation expense over time. Therefore, it is most suitable for assets that give most of their service early in their life. Eg technical/mechanical machinery
As allocates most cost early years of the assets life
Accumulative depreciation
Is the aggregate of the depreciation expenses at a given point in time made in respect to a part
Non-current assets
are economic resources that will not be used up or converted into cash within the normal yearly operations of the business
Property plant and equipment register
A comprehensive record of all details associated with these assets must be kept by he business for referral throughout the life of the asset & beyond. Subsidiary ledger is created to facilitate detailed recording. The ledger is called a register and is made up of a separate sheet, card or database form for each individual asset in addition to maintaining these records, checking for accuracy at appropriate intervals will also occur.
6 steps
- Write of depreciation up to date of disposal from last financial year
- Transfer asset to disposal
- Transfer accumulative depreciation to disposal
- Record the cash received for trade in
- Calculate and record loss/gain on sale
- Record purchase of new asset
6 steps- accounts
- Depreciation expense (dr)/ accumulative depreciation (cr)
- Disposal (dr)/ assets account (cr)
- Accumulative depreciation (dr)/ disposal (cr)
- Company ar (dr)/ disposal (cr)
- Gain/loss on disposal (cr/dr)/ disposal acc
- Asset & GST (dr) accounts payable (cr)
Administrative controls
Identification of assets- serial numbers can be recorded and engraved on items
Documents and titles storage- guarantees, receipts, and titles should be stored safely and in a manner that enables documents to be located easily
Asset storage and security- appropriate protection such as locks, alarm systems and security personnel should be introduced
Maintenance program- non-current assets should be regularly serviced and repaired to ensure the asset value is kept at e highest level possible
Insurance coverage- appropriate insurance for the value of the asset should be assessed annually
Disposal- procedures to obtained the best possible selling price should be an integral part of the business’ policies
Property plant and equipment rego
Purchasing of assets Identification of property, plant and equip Control accounts Documents and titles storage Asset storage and security Maintenance and program Insurance coverage Review procedures Disposal of assets
Purchasing assets
Investigation of most suitable asset, has assets been used elsewhere, problems, guarantees, long life? Supplier reliability, running costs- maintenance and operation, who looks after assets?
Disposal account
And account created for a short period of time when disposing of a non-current asset
Define Capital Expenditure
Is any significant cost that increases the value of the non-current asset
