U4, AOS 1 - Disposal of a NCA Flashcards
What is the purpose of disposing of a non-current asset?
To remove an asset from the balance sheet and recognize any gain or loss from the disposal.
True or False: Non-current assets can be disposed of through sale, scrapping, or donation.
True
Fill in the blank: The process of disposing of a non-current asset often involves determining its ________ value.
fair
What is a non-current asset?
An asset that is not expected to be converted into cash or consumed within one year.
Which of the following is an example of a non-current asset? A) Cash B) Inventory C) Machinery
C) Machinery
True or False: Depreciation affects the book value of a non-current asset before disposal.
True
What is the term for the amount received from the sale of a non-current asset?
Proceeds from disposal
Fill in the blank: When a non-current asset is disposed of, any difference between the ________ value and the carrying amount is recorded as a gain or loss.
sale
What is meant by ‘carrying amount’ in the context of asset disposal?
The value at which an asset is recognized on the balance sheet, accounting for depreciation.
True or False: A non-current asset must be fully depreciated before it can be disposed of.
False
What accounting entry is made when a non-current asset is sold for more than its carrying amount?
A gain on disposal is recorded.
Which financial statement reflects the disposal of a non-current asset?
The income statement through gain or loss recognition.
Fill in the blank: Companies often dispose of non-current assets to ________ capital for new investments.
generate
What is ‘scrapping’ in terms of non-current asset disposal?
The process of disposing of an asset that no longer has any value.
True or False: All non-current asset disposals must be reported in the financial statements.
True
What is the accounting treatment for a non-current asset donated to charity?
Record the asset at its fair value and recognize a loss equal to the carrying amount.
Fill in the blank: The ________ method is often used to estimate the fair value of a non-current asset at the time of disposal.
market
What is a ‘loss on disposal’?
The amount by which the carrying amount of an asset exceeds the proceeds from its disposal.
True or False: Non-current assets can only be disposed of by selling them.
False
