TOPIC 8 Flashcards
(19 cards)
What is Property, Plant, and Equipment?
Tangible items held for use in production, supply of goods or services, rental, or administrative purposes, expected to be used for more than one period.
What are the requirements for recognising Property, Plant, and Equipment?
It must be probable that future economic benefits will flow to the entity, and the cost can be measured reliably.
How is the ‘cost’ of a non-current asset determined?
The cost includes purchase price, transport, installation costs, and any costs directly attributed to bringing the asset to a usable condition.
What is Depreciation?
The systematic allocation of the depreciable amount of an asset over its useful life.
What is the Straight Line Depreciation method?
It allocates an equal amount of depreciation each period using the formula: (Cost - Residual Value) / Useful Life.
What is the Reducing Balance Depreciation method?
An accelerated method that allocates a fixed percentage of the asset’s declining carrying value each period.
What is the Units of Production Depreciation method?
Depreciation is based on the asset’s output during the period, using the formula: (Cost - Residual Value) / Life Output x Output During the Period.
What is the journal entry for Accrued Income?
Debit: Accounts Receivable (Asset increase), Credit: Services Income (Income increase).
What is the journal entry for Accrued Expense?
Debit: Expense (Expense increase), Credit: Expenses Payable (Liability increase).
What is FIFO in inventory accounting?
First In, First Out (FIFO) assumes that the first inventory purchased is the first sold, typically used for perishable goods.
What is the journal entry for a sale of inventory?
Debit: Cash (Increases Asset), Credit: Sales Revenue (Increases Income), Debit: Cost of Sales (Increases Expense), Credit: Inventory (Decreases Asset).
What is the Net Realisable Value (NRV) rule?
Inventory must be valued at the lower of cost and net realizable value (NRV), where NRV is the estimated selling price minus costs to complete and sell the inventory.
What is an impairment loss?
An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount, requiring an adjustment to reflect the loss.
What is the journal entry for an impairment loss?
Debit: Impairment Loss Expense (Increases Expense), Credit: Accumulated Impairment Loss (Negative Asset increases).
What is the Revaluation Model for non-current assets?
The Revaluation Model allows non-current assets to be carried at fair value, less accumulated depreciation and impairment losses, with regular revaluations.
What is the journal entry for an upward revaluation?
Debit: Asset (Increases Asset), Credit: Revaluation Surplus (Equity increases).
What is the journal entry for a downward revaluation?
Debit: Revaluation Expense (Increases Expense), Credit: Asset (Decreases Asset).
How is impairment recorded in the financial statements?
Impairment loss is recognized immediately in profit or loss, and accumulated impairment losses are recorded as a negative asset.
What is the journal entry for the disposal of a non-current asset?
Debit: Accumulated Depreciation (Decreases Asset), Credit: Non-Current Asset (Decreases Asset), Debit: Cash (Increases Asset), Credit: Gain on Disposal (Income) or Debit: Loss on Disposal (Expense).
