Non-Current Assets And Depreciation

Question 1

Cost of non-current assets definition

Answer 1

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

Question 2

Non-current asset cost includes?

Answer 2

Capital expenditure

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

Question 3

Non-current asset cost doesn’t include ?

Answer 3

Revenue expenditure

E.g. repairs, renewals, repainting

Question 4

What does capitalised mean?

Answer 4

Included on statement of financial position

Question 5

How are non-current assets recorded?

Answer 5

They are capitalised

Question 6

Purchase of non-current asset DE

Answer 6

Dr non-current asset
Cr bank/cash/payables

Question 7

Non-current asset accounts for sole traders

Answer 7

Separate cost account for each category of non-current asset

E.g. motor vehicles, fixtures and fittings

Question 8

Non-current asset purchase accounts for companies

Answer 8

All entered in property, plant and equipment

Question 9

Residual value

Answer 9

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

Question 10

Useful life

Answer 10

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

Question 11

What doesn’t depreciation do?

Answer 11

Show the asset at current value in balance sheet

Provide a fund for the replacement of the asset

Question 12

When does depreciation begin?

Answer 12

When the asset is available for use

Question 13

Do you depreciate land?

Answer 13

No

Question 14

Do you depreciate buildings?

Answer 14

Yes

Question 15

The two methods for calculating depreciation

Answer 15

1. Straight line
2. Reducing balance

Question 16

Straight line depreciation

Answer 16

(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

Question 17

Reducing balance depreciation

Answer 17

X% x carrying amount

Question 18

Disposing of reducing-balance asset in the exam

Answer 18

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

Question 19

Depreciation DE

Answer 19

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

Question 20

How accumulated depreciation is shown on statement of financial position

Answer 20

A reduction against non-current assets:

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

Question 21

Things that are estimated when calculating depreciation

Answer 21

1. Depreciation method
2. Residual value
3. Useful economic life

Question 22

IAS 16 PPE depreciation requirements

Answer 22

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

Question 23

Subsequent depreciation after changing estimate when using straight line

Answer 23

(Changed carrying amount - RV)/remaining UEL

Question 24

Profit/loss on disposal =

Answer 24

Proceeds - carrying amount

Question 25

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

Answer 25

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)

Question 26

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

Answer 26

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

Question 27

Part exchange agreement definition

Answer 27

And old asset is provided as part-payment for a new one The balance of the new asset is paid in cash

Question 28

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

Answer 28

Dr Disposals Cr N/C Assets

Question 29

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

Answer 29

Dr Accumulated depreciation Cr Disposals

Question 30

Recording the PEA DE

Answer 30

Dr NC Assets Cr Disposals

Question 31

Recording the cash balance paid for a new asset DE

Answer 31

Dr NC Assets Cr Cash

Question 32

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

Answer 32

Dr Cash Cr Disposals

Question 33

Impairment definition

Answer 33

Recoverable amount of asset is less than its carrying amount

Question 34

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

Answer 34

The greater of: 1. Fair value less cost to sell 2. Value in use

Question 35

Value in use

Answer 35

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

Question 36

Impairment DE

Answer 36

Dr Impairment expense (P&L) Cr Accumulated depreciation

Question 37

Non-current assets register

Answer 37

A list of all the non-current assets of the business Usually broken down by location and asset type

Question 38

Purpose of a non-current assets register

Answer 38

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

Question 39

Intangible non-current assets definition

Answer 39

Assets held for the long term that have no physical form E.g. patents, copyrights, licences, goodwill

Question 40

What is done to intangibles which have a useful life?

Answer 40

Amortised

Question 41

Amortisation definition

Answer 41

Depreciation for intangible assets

Question 42

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

Answer 42

Internally generated intangibles Too difficult to estimate their value

Question 43

Goodwill definition

Answer 43

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

Question 44

Where is goodwill recorded? Why?

Answer 44

Usually not recorded in financial statements Because highly subjective and volatile

Question 45

When is goodwill recorded on financial statements?

Answer 45

When goodwill is purchased on the acquisition of another business

Question 46

How is the value of goodwill reduced over time?

Answer 46

Reviewed annually Not depreciated/amortised

Question 47

Where are research costs charged?

Answer 47

P&L

Question 48

Where is development expenditure recorded?

Answer 48

Usually P&L In some cases must be shown as non-current asset

Question 49

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

Answer 49

Amortisation