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AC > Non-Current Assets And Depreciation > Flashcards

Non-Current Assets And Depreciation Flashcards

1
Q

Cost of non-current assets definition

A

The amount incurred to acquire the asset and bring it into working condition

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2
Q

Non-current asset cost includes?

A

Capital expenditure

E.g. purchase price, delivery costs, legal fees, subsequent expenditure which enhances the asset

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3
Q

Non-current asset cost doesn’t include ?

A

Revenue expenditure

E.g. repairs, renewals, repainting

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4
Q

What does capitalised mean?

A

Included on statement of financial position

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5
Q

How are non-current assets recorded?

A

They are capitalised

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6
Q

Purchase of non-current asset DE

A

Dr non-current asset
Cr bank/cash/payables

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7
Q

Non-current asset accounts for sole traders

A

Separate cost account for each category of non-current asset

E.g. motor vehicles, fixtures and fittings

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8
Q

Non-current asset purchase accounts for companies

A

All entered in property, plant and equipment

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9
Q

Residual value

A

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

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10
Q

Useful life

A

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

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11
Q

What doesn’t depreciation do?

A

Show the asset at current value in balance sheet

Provide a fund for the replacement of the asset

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12
Q

When does depreciation begin?

A

When the asset is available for use

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13
Q

Do you depreciate land?

A

No

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14
Q

Do you depreciate buildings?

A

Yes

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15
Q

The two methods for calculating depreciation

A
  1. Straight line
  2. Reducing balance
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16
Q

Straight line depreciation

A

(Cost - residual value)/useful life

x% x cost (can be used when there is no residual value)

Assumed to be charged monthly
Time apportion depreciation if only owned for part of the year

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17
Q

Reducing balance depreciation

A

X% x carrying amount

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18
Q

Disposing of reducing-balance asset in the exam

A

Won’t have to calculate monthly %
So disposal will either beginning of year (don’t depreciate) or end (do depreciate)

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19
Q

Depreciation DE

A

Dr depreciation expense (P&L)
Cr accumulated depreciation (BS)

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20
Q

How accumulated depreciation is shown on statement of financial position

A

A reduction against non-current assets:

Cost
(Accumulated depreciation)
—————
Carrying amount

21
Q

Things that are estimated when calculating depreciation

A
  1. Depreciation method
  2. Residual value
  3. Useful economic life
22
Q

IAS 16 PPE depreciation requirements

A
  1. Method reviewed each year and changed if it no longer reflects asset’s pattern of use
  2. Residual value reviewed each year and changed if expectations differ from previous estimates
  3. Carrying amount then depreciated with new estimates
23
Q

Subsequent depreciation after changing estimate when using straight line

A

(Changed carrying amount - RV)/remaining UEL

24
Q

Profit/loss on disposal =

A

Proceeds - carrying amount

25
Q

Accounting for a disposal of a non-current asset for cash consideration

A
  1. Create profit/loss on disposal account for the asset
  2. Remove its original cost from non-current asset account (dr)
  3. Remove its accumulated depreciation from accumulated depreciation account (cr)
  4. Record cash proceeds (cr)
  5. Balance off the disposals account to identify the profit or loss (profit will be a dr and loss will be a cr)
26
Q

Accounting for the disposal of a non-current asset though a part-exchange agreement

A
  1. Create profit/loss on disposal account for the asset
  2. Remove original cost from non-current asset account
  3. Remove accumulated depreciation from accumulated depreciation account
  4. Record part-exchange allowance (PEA) as proceeds and as part of the cost of the new asset
  5. Record the cash balance paid for the new asset
  6. Balance off the disposals account to find the profit/loss
27
Q

Part exchange agreement definition

A

And old asset is provided as part-payment for a new one

The balance of the new asset is paid in cash

28
Q

Removing original cost of a non-current asset to be disposed of from non-current asset account DE

A

Dr Disposals
Cr N/C Assets

29
Q

Removing accumulated depreciation of non-current asset to be disposed of from accumulated depreciation account DE

A

Dr Accumulated depreciation
Cr Disposals

30
Q

Recording the PEA DE

A

Dr NC Assets
Cr Disposals

31
Q

Recording the cash balance paid for a new asset DE

A

Dr NC Assets
Cr Cash

32
Q

Recording the proceeds of the sale of a non-current asset to be disposed of DE

A

Dr Cash
Cr Disposals

33
Q

Impairment definition

A

Recoverable amount of asset is less than its carrying amount

34
Q

Recoverable amount must be accounted as (what is the rule?)

A

The greater of:

  1. Fair value less cost to sell
  2. Value in use
35
Q

Value in use

A

The present value of future cash flows expected to be generated by the asset

36
Q

Impairment DE

A

Dr Impairment expense (P&L)
Cr Accumulated depreciation

37
Q

Non-current assets register

A

A list of all the non-current assets of the business

Usually broken down by location and asset type

38
Q

Purpose of a non-current assets register

A

To control non-current assets and keep track of what is owned and where it is kept

39
Q

Intangible non-current assets definition

A

Assets held for the long term that have no physical form

E.g. patents, copyrights, licences, goodwill

40
Q

What is done to intangibles which have a useful life?

A

Amortised

41
Q

Amortisation definition

A

Depreciation for intangible assets

42
Q

Which type of intangible doesn’t appear on the statement of financial position?

Why?

A

Internally generated intangibles

Too difficult to estimate their value

43
Q

Goodwill definition

A

The excess value of a business above the carrying amount of its assets less it’d liabilities in its accounting records

E.g. from reputation, skills, staff experience, customer relationships

44
Q

Where is goodwill recorded?

Why?

A

Usually not recorded in financial statements

Because highly subjective and volatile

45
Q

When is goodwill recorded on financial statements?

A

When goodwill is purchased on the acquisition of another business

46
Q

How is the value of goodwill reduced over time?

A

Reviewed annually

Not depreciated/amortised

47
Q

Where are research costs charged?

A

P&L

48
Q

Where is development expenditure recorded?

A

Usually P&L

In some cases must be shown as non-current asset

49
Q

How is the use of research reflected if it is recorded in the statement of financial position?

A

Amortisation

AC (15 decks)

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