Week 8 (accounting for non-current assets)

Question 1

Property, plant and equipment

Answer 1

The cost and selling price of the equipment is the total cost of all the stuff required to obtain the asset

Question 2

general depreciation adjustments

Answer 2

common adjusting entry for depreciation:
Dr - depreciation expense
Cr - accumulated depreciation

Question 3

Depreciation methods

Answer 3

straight line method- just linear

reducing/diminishing balance method- depreciation = carrying amount * %rate

Carrying amount = Carrying amount - depreciation

units of production method -

depreciation = ((cost - residual value)/(Useful life output)) * (output during the period)

residual value = is the cost of it after its useful life

Question 4

flowchart of evaluating the current cost of assets

Answer 4

1. cost of non-current asset
2. Determine depreciation

choose either

3a. Cost model

3b. Revaluation model

Question 5

Cost model

Answer 5

1- find carrying amount
- this is amount - depreciation

2- find recoverable amount

• it is the higher value between:
• fair value - cost of disposal
• value in use
• these will be given

3- if recoverable amount is less then carrying amount, adjustment needs to be made

• record impairment loss = CA - RA
• adjusting entry:
• Dr - Impairment loss (expense)
• Cr - Accumulated impairment losses (negative asset)

Question 6

Revaluation model

Answer 6

1- find carrying amount
- deprecation

2- find out fair value
- this will be given in the question

3- find out if it is material
- (CA - FA)/FA > 0.1

3- apply revaluation
- if CA < FV revalue upwards
- if CA > FV revalue downwards
- you are aiming towards Fair value

4- then apply the adjusment
- the amount changing is CA - FV

either:
Dr - asset
Cr - revuluation surplus (income)

Dr - revuluation expense (expense)
Cr - asset

Question 7

Disposal of non-current asset

Answer 7

Proceeds = the actual amount its sold for

= Proceeds - carrying amount
- is used to show gain or loss

Entry for disposal

Gain:

Dr- cash paid for asset
Dr- accumulated depreciation on asset

—-> Cr- Gain on sale of asset
—-> Cr- Asset itself

Loss

Dr- cash paid for asset
Dr- accumulated depreciation on asset
Dr- loss on sale of asset
—> Cr- asset itself