Week 8 - Topic 8 - Accounting for non-current assets

Question 1

What are the 4 conditions must be met to be classified as a non-current asset?

Answer 1

1. Will provide economic benefits for more than 12 months
2. Will be used directly or indirectly in the revenue-earning process
3. They are not intended for resale to customers or clients
4. Meet the asset definition and recognition criteria

Question 2

What is an example of a non-current asset? (Hint: PPE)

Answer 2

Property, Plant & Equipment (tangible/physical)

Question 3

Using a wind turbine as an example, determine the 4 aspects that are considered to determine the cost.

Answer 3

1. Purchase price
2. Transportation costs
3. Installation costs
4. Testing costs

Question 4

What’s the only non-current asset that does not lose its value over time?

Answer 4

Land

Question 5

Define ‘Depreciation’?

Answer 5

The systematic allocation of the depreciable amount of an asset over its useful life.

Question 6

Define ‘Useful life’?

Answer 6

The period over which an asset is expected to be available for use by an entity.

Question 7

Define ‘Residual value’?

Answer 7

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

Question 8

Define ‘Depreciable amount’?

Answer 8

the cost of an asset, or other amount substituted for its cost, less its residual value.

Question 9

Define ‘Carrying amount’?

Answer 9

The amount at which an asset is recognised after deducting accumulated depreciation.

Question 10

Define ‘Recoverable amount’?

Answer 10

Is the higher of its fair value, less costs of disposal and its value in use.

Question 11

Define the term ‘Amortisation’?

Answer 11

Depreciation related to intangible assets.

Question 12

What is the ‘Fair value’?

Answer 12

is the price that would be received to sell an asset … in an orderly transaction between market participants at the measurement date.

Question 13

Define the term ‘Capital expenditure’?

Answer 13

expenditures that increase an asset’s capacity or efficiency or extend its useful life.

Question 14

Who is the ‘Lessor’?

Answer 14

The party that owns an asset

Question 15

Who is the ‘Lessee’?

Answer 15

The party that’s allowed to use the asset.

Question 16

What is the ‘Impairment loss’?

Answer 16

is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

Question 17

What is the ‘Value in use’?

Answer 17

is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.