Non-Current Assets

Question 1

IAS 16 - PPE

Answer 1

Held/used in the business greater than a year to generate sales.

Recognition:

• It is probable of economic benefits
• Costs can be measured

Question 2

Initial Measurement

Answer 2

DR - NCA
CR - Bank/Cash

Recognise:

• All costs involved in bringing the asset to it present condition. Including deliver, site prep, installation.
• Dismantling costs brought to PV. Eg. 100,000 over 5 years 10% 100,000 x 1/1.1 to the power of 5
• depreciation is of the total of the asset and the dismantling costs / UEL

Question 3

Subsequent measurement

Answer 3

Historical cost - Original cost - Depreciation.

Subsequent Capital expenditure. Must enhance the asset - complex asset replaced - Dr. NCA - Cr. Bank

Question 4

Depreciation

Answer 4

Straight line = Cost/UEL

Reducing = Cost - Accumulated depreciated / %

As soon as asset is available for use

Dr - Depreciation Expense (COS)
Cr - Accumulated Depreciate (SFP)

Excluded Residual value from Depreciated calculation.

Question 5

Subsequent measure in the Revaluation Model

Answer 5

Revalued each year with a gain or a loss. Though the revaluation reserve.

Increase in valuation example

Dr - NCA (gain)
Cr - Revaluation Reserve (OCI)

Decrease in valuation

Cr - NCA (loss)
Dr - Revaluation Reserve

There cannot be a Dr Balance in the Reval Reserve - anything below nil goes straight to the P&L as an Impairment loss.

Depreciation after revaluation: accumulated depreciation b/f would be wiped. Then calculated on new revalued amount.

Question 6

Transfer to Retained Earning

Answer 6

When an asset is valued upwards, this means more depreciation in the p&l and this means less profits.

Workings:

Asset = 35,000 - UEL 10y = Dep = 3500
Revalue = 50,000 - UEL 10Y = Dep = 5,000

5,000 - 3,500 = 1,500 uplift in depreciation. Therefore

Dr. Revaluation Reserve
Cr. Retained Earnings.

Question 7

Borrowing Costs

Answer 7

Must Capitalise:

• Expenditure for the asset has started to be incurred
• Borrowing costs/finance cost has started to be incurred
• Activity on the asset has commenced (construction)

Question 8

Calculation of borrowing costs

Answer 8

Note: if the company has taken out more than one loan, then a weighted average of all the loans. eg.

20,000 at 4%
15,000 at 6%

(20,000 x 4%) + (15,000 x 6%) / 20,000 + 15,000 = 4.9%

Borrowing costs should no longer be capitalise if

• Construction temporarily suspended.
• Complete and ready for use/sale

Question 9

IAS 20 - Government Grants

Answer 9

2 methods

• Deferred income over UEL
• Deduct grant from cost + recognise as part of depreciation charge.

Question 10

Investment Properties - IAS 40

Answer 10

Assets principally held to earn rental income or held to sell in the future.

Measured at cost or FV

FV Exceptions:
-Gains or Losses direct to the P&L
- No depreciation

Question 11

Impairment of NCA

Answer 11

Assets held at the lower of

Carry Amount and Recoverable amount.

Recoverable amount = greater of FV less costs to sell or value in use.