Week 5 Flashcards
(21 cards)
What are non-current assets?
Long-term assets expected to provide economic benefit for more than one year.
What are the three types of non-current assets?
- Tangible
- Intangible
- Financial
What is the key difference between current and non-current assets?
Current assets are used or sold within 1 year; non-current assets provide benefits over more than 1 year.
What is historical cost?
The purchase price + all costs to bring the asset to working condition and location.
Give two examples of costs included in historical cost.
- Delivery
- Installation
- Legal/professional fees
Give two examples of costs not included in historical cost.
- Warranties
- Future spare parts
What is the journal entry for purchasing a non-current asset on credit?
DR Non-current asset, CR Payables
What is depreciation?
The allocation of a tangible asset’s cost over its useful life.
What is the formula for straight-line depreciation?
(Cost − Residual Value) ÷ Useful life
What is Net Book Value (NBV)?
Asset’s cost minus accumulated depreciation.
Why do businesses use depreciation in reporting?
To match the cost of using the asset to the revenue it generates.
When is the straight-line method suitable?
When asset use is even across years (e.g., leases).
When is the reducing balance method suitable?
When assets lose more value early on (e.g., vehicles).
How does the reducing balance method work?
Applies a fixed % to NBV at the start of each year.
How do you calculate profit or loss on disposal?
Proceeds − Net Book Value
What happens if proceeds > NBV?
Profit on disposal
What happens if proceeds < NBV?
Loss on disposal
What are intangible assets?
Non-physical, long-term assets (e.g., brands, patents)
What 3 conditions must be met to recognise an intangible asset?
- Identifiability
- Control
- Future economic benefit
How are intangible assets with finite lives treated?
They are amortised over their useful life.
What is amortisation?
The depreciation equivalent for intangible assets.
