3: Non-Current Assets Flashcards
(19 cards)
non-current assets
PPE as tangible assets held for use in the production or supply of goods or services tfor rental to others or for administration purposes, and are expected to be used for more than one accounting period
initial measurement
needs to be recognised at cost
purchase price, import duties/other tax, directly attributable costs, decommissioning cost
cannot include general administrative or overhead costs
self-constructed assets
if an entity constructs its own asset instead of buying it, apply the same principles
exception is where the company who constructed the asset undertakes to produce similar assets in its normal course of business
exchange of assets
acquiring assets not by purchase but by exchange
initial value of the item is based on fair value at the date of exchange
- if fair value cannot be established, cost of the new asset is measured equal to the carrying amount of the asset given up
exception where the transaction lacks commercial substance and if assets are interchangeable
subsequent expenditure
can be capitalised as an asset or written off as an expense
recognition as an asset
capitalise expenditure as an asset where the expenditure increases the earning capacity of the PPE
additional costs can be capitalised for items replaced at regular intervals (roof/elevators of a building, furnaces, interior of an aircraft, etc.)
- new element is treated as separate from the rest of the asset
recognition as an expense
cannot recognise subsequent expenditure as an asset if it relates to ongoing repairs and maintenance
subsequent measurement after initial recognition
accounting policy choice where the asset can be held at cost or we change valuation bases and use fair value
subsequent measurement after initial recognition: cost model
use initial historic cost of the asset captured initially and deduct accumulated depreciation and impairment losses
subsequent measurement after initial recognition: revaluation model
carry asset at its revalued amount
revalued amount is the fair value at the remeasurement date - accumulated depreciation - accumulated impairment
depreciation
systematic allocation of the depreciable amount of an asset over its useful life
accounting entry for depreciation
debit depreciation expense
credit accumulated depreciation
how often should depreciation method be reviewed?
at least every financial year as specified by the standard
derecognition of an asset
have to derecognise the cost of the asset and also the accumulated depreciation
then consider whether you make a gain or loss on disposal
4 steps of derecognition of an asset
- remove asset cost/value
- credit cost - remove accumulated depreciation
- credit accumulated depreciation - record the value of proceeds
- debit bank/cash - calculate gain/loss on disposal
- gains credited to SPL and losses debited to SPL
accounting treatment of revaluation
- increase asset/cost to revalued amount
- remove accumulated depreciation charged to date
- record the difference in the revaluation surplus as a balancing figure
depreciation of revalued assets
once you have revalued an asset, you need to depreciate the asset as well
take revalued amount and revised useful life to get new depreciation charge
- in most cases, as the value of the asset has increased, depreciation charge also increases
accounting policy choice with depreciation of revalued assets
releasing from the revalued surplus to retained earnings the excess depreciation charged as a result of the revaluation
compensation for additional expenses and reduced profit
disclosure requirements
measurement bases for carrying amount of assets
depreciation methods used
useful life / depreciation rates
gross carrying amount and accumulated depreciation at the beginning/end of each period
reconciliation of opening/closing amounts by showing additions, disposals, impairments, etc.
