University:
Cypress College
Course:
ACCT 101 C | Financial Accounting
Academic year:

2022
Views:

259

Pages:

14
Author:

Aniya Medina

Non Current Assets: Acquisition and Depreciation Purchase of Asset Cost to be added Cost not to be added Example: We bought a machine. Machine: 100000 (To be capitalized) Transport: 5000 (Included) Installation: 10000 (Included) Repair: 2000 (Not included, revenue expense) Non-Current Assets Long-term in nature Not purchased for resale Tangible (seen) Intangible (cannot be seen) Used to generate income directly or indirectly Not liquid (not easily converted into cash without significant loss) Capital and Revenue Expenditure Asset Cost of asset Cost not to be added Cost to be added Purchase on Credit Put to start Capital Increase in assets Cost not to be added: Used for repairs Maintenance expenses Shown in the P&L Cost to be added: Increase in assets Shown in the balance sheet Example: Purchase on credit for office: 500,000 Transport: 10,000 (Capital) Installation: 5000 (Capital) First Service: 3000 (Revenue expense) Non-Current Asset Register Cost Date of purchase Description of asset Serial/reference no. Location of asset Depreciation method Expected useful life Carrying value Acquisition of a Non-Current Asset IAS - PPE Cost consists of: Include: Purchase price Delivery cost Legal fees Total cost Exclude: Repairs Repainting General overhead Training cost Wastage Journal Entry Dr. Non-Current Asset Cr. Cash (Bank Payable) Test 1 Land and Building: Office Premises: 260,000 Legal Fee: 10,000 Total: 260,000 Moto Vehicle Mercedes Car: 116,000 Number Plate: 210 Delivery: 180 Total: 116,390 Depreciation Straight-line method Reducing balance method Depreciation (May Vary From) Use Physical wear and tear Passing of time Obsolescence through technology and market changes Depletion Allocation of Cost of Asset The cost of an asset is allocated over its estimated useful life to benefit the use. This is not for showing the current value of the asset. The purpose of depreciation is to provide a fund for the replacement of the asset. According to IAS 16 Land cannot be depreciated. Building can be depreciated. Depreciation starts when the asset is available for use. Straight-Line Method Car purchased for 10 years. Life: 10 years Scrap Value: 10,000 Remaining: 900,000 Rule Depreciation remains same each year. Formula Depreciation = (Cost of Asset - Scrap Value) / Useful Life 1/10 = (900,000 / 10) = 90,000 each year Reducing Balance Method Value of depreciation changes each year. Value of depreciation each year is calculated on the previous year's carrying amount. Residual value has no use in this method. Table Date Particulars Debit Credit 31/Dec/16 Purchase 100,000 31/Dec/17 Depreciation 32,000 Carrying Amount 68,000 31/Dec/18 Depreciation 22,720 Carrying Amount 45,280 Depreciation Purchased for: 100,000 Rate: 20% per annum Chart Date Particulars Amount 31-Dec-16 Purchase 100,000 31-Dec-17 Depreciation (100,000 * 20%) 20,000 Carrying Amount 80,000 31-Dec-18 Depreciation (80,000 * 20%) 16,000 Carrying Amount 64,000