Learning Unit 5

Question 1

Definition of an asset

Answer 1

An asset is a present economic resource, a right with the potential to produce economic benefits, controlled by the entity as a result of past events

Question 2

Non-current assets vs current assets

(Define them)

Answer 2

Non-current assets:
Long-term investments where the full value will not be realised within the financial year

Current assets:
Assets that can reasonably be expected to be realised within a financial year

Question 3

Define Property, Plant and Equipment

Answer 3

Tangible items that are held for use in the production/supply of goods and services, for rental to others or for administrative purposes and are expected to be used during more than one period

Question 4

Different classes of PPE

(Give examples)

Answer 4

Land, land and buildings, machinery, ships, aircraft, motor vehicles, furniture and fixtures, office equipment

Question 5

Define an intagible asset

Answer 5

An intangible asset is an identifiable non-monetary asset without physical substance

Question 6

Different classes of intangible assets

(Give examples)

Answer 6

Brand names, mastheads and publishing titles, computer software, licenses and franchises, copyrights, patents, other industrial property rights, servicing and operating rights, recipes, formulae, models, designs, prototypes, intangible assets under development

Question 7

Define a financial asset

Answer 7

Financial assets represent amounts invested outside the entity in a security

Question 8

Different classes of financial assets

(Give examples)

Answer 8

Investments in: financial institutions, held for trading valued at fair value through profit and loss (Equity securities or debt instruments), NOT held for trading valued at fair vlue through other comprehensive income (equity securities or debt instruments), debt securities valued at amortised cost, crypto currency

Question 9

What compromises the cost of PPE at initial recognition

(Tangible assets)

Answer 9

Purchase price (including import +non-refundable tax - discounts - rebates) + directly attributable costs + estimate of dismantling and restoring site to orginal condition

Question 10

What are directly attributable costs

(See cost of PPE, card 9)

Answer 10

1. Cost of employee benefits from constructing or acquiring the item
2. Cost of site preparation
3. Initial handling and delivery costs
4. Installation costs
5. Cost of testing the asset to see if it works
6. Professional fees (architects/engineers)

Question 11

Cost of an intangible asset

Answer 11

Amount of cash or cash equivalents paid, or the fair value of the consideration given to acquire an asset at the time of acquisition

Question 12

Cost of a financial asset

Answer 12

Purchase price is generally regarded as the cost price

Question 13

Cost of a financial asset valued at fair value through profit or loss

Answer 13

Transaction costs are treated as expenses

Question 14

Cost of a finacial asset valued at fair value through other comprehensive income

Answer 14

Transaction costs are capitalised and debited to the investment account

Question 15

Financial assets at amortised cost

Answer 15

Valued using the effective interest rate, transaction costs are capitalised and debited to the investment account

Question 16

VAT vendors and cost of PPE

(Impact of VAT)

Answer 16

If VAT registered and purchase price is inclusive remember to work with the excluive price

Question 17

Costs incurred on PPE after acquisistion

Answer 17

If it improves the asset then it is added to cost price, if it is to maintain the asset it is an expense