Lecture Four

Question 1

What are non current assets

Answer 1

assets that are:
-long life
-used in business
-not bought for the purpose of reselling
-of material -e.g. significant value (materiality concept)

Question 2

What does the materiality concept refer to

Answer 2

materials that arent worth disclosing. e.g. a stapler, it is used for daily use and is an asset of business but it doesnt have a value that is needed to be kept track of.

Question 3

What are the two main categories of non current assets

Answer 3

Tangible and Intangible

Question 4

What does NCA stand for

Answer 4

Non current assets

Question 5

What does tangible mean & examples

Answer 5

NCAs that u can see and touch
e.g. land, buildings, machinery, equipment, computer, vehicles

Question 6

What does Intangible mean & give examples

Answer 6

Assets that dont have a physical presence
e.g. brand names, patents, goodwill

Question 7

What is the name refering to spending on non current assets

Answer 7

Capital expenditure

Question 8

When is capital expenditure incurred

Answer 8

Buying non current assets OR Adding to the earning CAPACITY of EXISTING non current assets -improving them

Question 9

What is included in the costs of buying an NCA

Answer 9

1- delivery cost
2- legal costs of buying land/buildings
3- any initial costs needed to get the NCA ready before the first use - of which will benefit the business long term

Question 10

What is an example of the delivery cost

Answer 10

e.g. buying from india may be cheaper but that would mean increased delivery cost = increased capital cost

Question 11

What is an example of the legal costs of buildings or land

Answer 11

E.g. installing it/building it/designing it with architect cost

Question 12

What is revenue expenditure

Answer 12

spending money incurred ON RUNNING COSTS of the business and maintaining its NCA -

Question 13

is repairing capital or revenue expenditure

Answer 13

revenue expenditure because repairing which is correcting not improving

Question 14

Depreciation meaning

Answer 14

When non current assets wear out or become obsolete (out of date) - when they dont last forever - therefore the cost of the NCA but be SPREAD OVER its useful life

Question 15

Can freehold land be depreciated ?

Answer 15

No, freehold land generally has an unlimited useful life

Question 16

What are the two ways to spread cost when deprecating

Answer 16

-straight line depreciation
-reducing balance depreciation

Question 17

How to do straight line depreciation

Answer 17

equal benefit for each year of using the nca

Question 18

How to work out the straight line depreciation

Answer 18

Original Cost - estimated residual value / expected years of use

Question 19

Residual value meaning

Answer 19

The value of the asset at the END of its useful life

Question 20

What is meant by the carrying down amount

Answer 20

The amount that is left after it has been depreciated for that year

Question 21

What is also meant by carrying down amount

Answer 21

Net book value (NBV)

Question 22

What is meant by the deprecation expense

Answer 22

the amount that is reducing the cost over the years

Question 23

Why is the straight line depreciation bad

Answer 23

• Expect = abit absurd, no idea how long itll last, e.g. breaking down..
• -have to guess = making the figures meaningless
• -calculation based on artifice and guessed cost of life of an asset

Question 24

What if theres no residual value estimated

Answer 24

Usually there isnt a residual value
-instead they express the straight line depreciation as a % of the cost of the asset

e.g. a computer bought at 1200 is expected to last 4 years

= 1200 x 25% = £300 depreciation per year

Question 25

what is reducing balance depreciation?

Answer 25

- a fixed percentage is applied to the cost of the NCA in the first year is is bought -in the following years the same percentage is applied to the reduced balance (i.e. the cost - all depreciation charged to date (NBV))

Question 26

example of reducing balance depreciation: bought machine for £10000 on 2011 and charge 20% reducing balance

Answer 26

depreciation expense for Y1 = (2000) Reduced Balance y1 = 8000 depreciation expense for 2 = (1600) Reduced Balance y2 = 6400 etc.

Question 27

Which financial account does deprecation expense display on

Answer 27

SPL - statement of profit and loss

Question 28

What is meant by the accumulated depreciation

Answer 28

reflecting the amount of the original cost that has been used up

Question 29

Which financial account does accumulated expense display on

Answer 29

SFP - statement of financial position

Question 30

Is accumulated expense credit or debit

Answer 30

Credit

Question 31

Is accumulated expense credit or debit

Question 32

What are the two ways of computing the depreciation if the NCAs weren't purchased at the first day of the accounting year?

Answer 32

- charge monthly depreciation BASED ON NUMBER OF MONTHS THE ASSET HAS BEEN OWNED (Pro rata) -Simply charge the full year of depreciation in the year of acquisition but none in year of the disposal

Question 33

Example of using the method of depreciation where its not at the start of the accounting period: Machine A for £24000 on 01/11/24 Machine B for £19200 on 1/02/25 25% straight line method -use the method where u record full year of acquisition and none of year of disposal

Answer 33

both machines bought in the financial year ending 31/05/25 - full year of depreciation charged =(24000 + 19200) x 25% = £10800

Question 34

Example of using the method of depreciation where its not at the start of the accounting period: Machine A for £24000 on 01/11/24 Machine B for £19200 on 1/02/25 25% straight line method -use the method where u calculate depreciation on monthly basis

Answer 34

Machine A dep = 24000 x 25% = £6000 per year -owned for 7month 6000 x 7/12 = £3500 Machine B dep = 19200 x 25% = £4800 per year -owned for 4 month 4800 x 4/12 = £1600 =£5100

Question 35

What is meant by the Disposal of NCA

Answer 35

When business sells the NCA - almost certainly receive either more/less then the asset net book value on the date of disposal -therefore profit/loss wil arise

Question 36

How to work out the disposal of NCA

Answer 36

Sale proceeds (what its sold at) - NBV at the date of disposal =P or L on disposal

Question 37

Where would the disposal profit or loss be displayed

Answer 37

On the SPL as 'other name' or 'negative expense' among the expenses

Question 38

What is another word for Part-exchange

Answer 38

Trade in

Question 39

What is meant by the part exchange?

Answer 39

when the NCA is disposed of by giving it in a trade in for the new one

Question 40

How is the disposal proceeds displayed with the part exchange

Answer 40

old asset part exchange = trade in value

Question 41

What would the disposal proceeds be if: a new van is £16000 paid £12000 cash + traded in an old van

Answer 41

effective disposal proceeds = £4000 for the OLD van

Question 42

name the 10 accounting concepts relating to NCA

Answer 42

1. business entity 2. money measurement 3. materiality 4. historical cost 5. substance over form 6. time interval 7. dual aspect 8. accrual basis 9. going concern 10. consistency

Question 43

What type of expenditure if referred to when talking about the COST of the NCA

Answer 43

Only the capital expenditure - revenue expenditure IS NOT PART OF THE ASSET COST