Introductory Financial Accounting Lecture 7: Non-current Assets

This set of vocabulary flashcards covers key concepts from Lecture 7 of Introductory Financial Accounting, including PPE definitions, depreciation methods, impairments, disposals, and intangible assets.

Property, Plant & Equipment (PPE)

Tangible items that are held for use in production or supply of goods and services, for rental to others, or for administrative purposes, and are expected to be used during more than one period.

Cost of PPE

Consists of all expenditure necessary to acquire the asset and bring it to a location and condition ready for use, including purchase price, freight costs, and installation costs.

Revenue Expenditure

Non-capital expenditures, such as training an operator or oil for a machine, which are expensed immediately in the Income Statement.

Land Improvements

Costs for improvements such as paving, landscaping, car park construction, and fences that are identified in a separate account and subject to depreciation.

Impairment Loss

The amount by which the carrying amount of an asset exceeds its recoverable amount as per AASB 136.

Recoverable Amount

The higher of an asset's fair value less costs to sell and its value in use.

Value in Use

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

Depreciation

The process of allocating to expense the cost of a PPE asset over its useful (service) life in a rational and systematic manner, representing the consumption of future economic benefits.

Carrying Amount

The value of an asset calculated as its cost less accumulated depreciation.

Straight-line Method

A depreciation method where the annual charge is calculated as $\frac{\text{cost of asset} - \text{residual value}}{\text{useful life of the asset}}$.

Diminishing (Reducing)-balance Method

A depreciation method where expense decreases each year by applying a fixed percentage rate to the carrying amount at the start of the period.

Units-of-production Method

A depreciation method where expense is calculated based on activity: $\text{depreciation cost per unit} \times \text{yearly units of production}$, where cost per unit is $\frac{\text{depreciable cost}}{\text{useful life in units}}$.

Ordinary Repairs

Costs in servicing or maintaining operating efficiency of the asset that are expensed immediately in the operating statement.

Additions and Improvements

Costs incurred to increase operating efficiency, such as an overhaul, which are capitalised and depreciated over the asset's remaining useful life.

Gain on Disposal

An over-provision of depreciation recognized when the proceeds from the sale of an asset exceed its carrying amount.

Loss on Disposal

An under-provision of depreciation recognized when the proceeds from the sale of an asset are less than its carrying amount.

Intangible Assets

Identifiable non-monetary assets that have no physical substance, such as patents, franchises, landmarks, and brand names.

Goodwill

An unidentifiable intangible asset arising from the purchase of another entity that cannot be separated from the entity itself.

Research

Internal project activities aimed at obtaining new knowledge or searching for alternatives; these costs are classified as expenses in the period incurred.

Development

The phase where internal project costs can be capitalised if technical feasibility, intention to complete, and probable future economic benefits can be demonstrated.

Amortisation

The process of allocating the cost of intangible assets with definite lives to expense over their estimated useful life.