AVBK - Chapter 3 - Capital & Revenue Expenditure

Non- Current Assets

The assets that were purchased with the intention of long term use within the business.
Longer than 12 months.

Capital Expenditure

Is expenditure on the purchase or enhancement of non current assets.

Revenue Expenditure

Is all other expenditure incurred by the business other than capital expenditure.

IAS 16 Property, Plant and Equipment

*Sets out the principles of accounting for Non-Current assets such as land and buildings, machinery, office equipment, shop fittings and Vehicles.
* IAS16 acknowledges that after initial purchases cost there will often be further costs spent on PPE.
* The allowable expenditure is:
- Cost of day to day servicing of the asset, including small parts. This is shown on the P&L
-Parts than require replacement regularly, for example seats on a bus or a train. The costs can be included in the Carrying amount providing they meet the criteria.
- regular Inspections in order to carry on operation, for example an aircraft. Costs can be included in carrying amount providing the meet the criteria.
*Initial shown on the SFP at cost including import duties, taxes and direct costs to bring the asset to the location.
*Cost model (cost less accumulated depreciation and impairment losses) and revaluation models (Carried on the SFP at fair price less any future depreciation and impairment losses.)
*Depreciation, Straight-line, Diminishing or Units of production.
*De-recognition -When an item of PPE is disposed of or when no future economic benefits are expected from use or disposal.

Cost (in terms of assets)

Cost of the asset should include the cost of the asset and the cost of getting the asset to its' current location and into working condition.

Cost = Purchase Price + Additional Costs*

*additional costs include delivery costs, legal and professional fees, installation costs (site preparation and construction) and test runs.

Transfer Journal

The transfer journal is a primary record which is used for transactions that do not appear in the other primary records of the business.

Production Cost

Production cost is the direct cost of production (materials, labour and expenses) plus the appropriate amount of the normal production overheads relating to the production of the asset.

Methods of financing non current asset acquisitions

Borrowing - Monies borrowed from a lender or bank.
Hire Purchase - Regular payments made to a finance company. Once all payments have been made the business can elect ownership of the asset.
Finance Leases - Regular rental payments to a finance company over set period of time. Asset remains the property of the lessor.
Part Exchange - Ownership of one asset transferred to cover part of the cost of new assets.

Tangible Non Current Asset

Non current assets that have a tangible physical form.
Buildings, vehicles, computers, plant & machinery.

Intangible Non Current Asset

Assets for long term use in the business that have no physical form.

Patents, Licences, and goodwill.

Goodwill

Goodwill is the asset arising from the fact that a going concern business is worth more in total that the total value of its tangible net assets. Goodwill can arise from many different factors including good reputation, good location, quality products, and quality after-sales.

Non-Current Assets Register

It is a documentation of all non current assets within the business. Utilised by organisations with a large amount of non-current assets to monitor all the assets including verifications of possession, depreciations and disposals.