Chapter 3 ; Capital and revenue expenditure

Non- current assets

Assets that are purchased with the intention of long-term use within the business - property, plant and equipment

Capital expenditure

Expenditure on non-current assets such as property, plant and equipment or on the improvement of these assets. Capital purchases are recorded as assets on the statement of financial position

Revenue expenditure

All other expenditure within the business that is not of a capital nature in recording in the statement of profit or loss. This may include further expenditure incurred on a non-current asset during its life, repairs and maintenance

Non-current asset cost on statement of financial position

The assest is initially recorded at cost, the cost figure includes purchase cost as well as any additional costs incurred getting the asset to its current position and working condition. E.g delivery costs, installation costs, legal fees

IAS 16 states that subsequent expenditure should only be capitalised if

Where it enhances the value of the asset

Where a major component of the asset is replaced or restored

Where it is a major inspection or overhaul of the asset

Tangible non current asset

Assets which have a tangible, physical form e.g. land, buildings, machinery

Intangible non current assets

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

Authorisation of capital expenditure

They can be expensive

Funding options

Process of authorisation

Accounting for non-current asset paid for by cash/cheque

DR non-current asset account

CR cash/bank account

Accounting for non-current asset bought on credit

DR non-current asset account

CR liability (payable/loan) account

The double entry to record the purchase of a non-current asset subject to VAT

DR non-current asset account (net)

DR VAT control account (VAT amount)

CR bank/payable account (gross)

Accounting for the acquisition of a motor car

VAT cannot be reclaimed on the purchase of a motor car

Debit entry to the non-current asset is for the gross account

Non current asset register

Asset description

Asset identification

Asset location

Date of purchase

Purchase price

Supplier name

Invoice number

Any additional enhancement expenditure

Depreciation method

Estimated useful life

Estimated residual value

Accumulated depreciation to date

Carrying amount

Disposal details

Journal day book

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

Non-current assets that are produced internally

Where non-current assts are produced internally then the amount that should be capitalised as the cost is the production cost of the asset

Goodwill

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