Non-Current Assets: Tangible and Intangible Review

This flashcard set covers the fundamental definitions, classifications, and accounting treatments for non-current assets, including various depreciation methods and capital versus revenue expenditures.

Assets

Anything tangible and intangible that can be considered an economic resource, which is owned and controlled by a company and recorded on the Statement of Financial Position at its monetary value.

Non-current Assets

Assets that are expected to keep providing benefit for more than one year, including Tangible fixed assets (PPE) and Intangible fixed assets.

Current Assets

Assets that will be consumed within one year.

Carrying Value (Book Value)

$\text{Asset cost} - \text{accumulated depreciation/depletion/amortization/impairment}$ representing the unexpired part of the cost of an asset.

Expenditure

A payment or an obligation to make future payment for an asset or a service.

Capital Expenditure

An expenditure designated for the purchase or expansion of a non-current asset.

Revenue Expenditure

An expenditure related to the repair, maintenance, and operation of a non-current asset.

Depreciation

A system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit in a systematic and rational manner.

Depletion

The corresponding expense for the allocation of the cost of natural resources over time.

Amortization

The corresponding expense for the allocation of the cost of intangible assets over time.

Residual Value (Salvage or Disposal Value)

An asset's estimated net scrap, salvage, or trade-in value as of the estimated date of disposal.

Depreciable Cost

$\text{Cost} - \text{Residual Value}$, which is the amount allocated over the useful life of an asset.

Estimated Useful Life

The total number of service units expected from a non-current asset, which may be measured in years, miles, units, or similar measures.

Accumulated Depreciation

A contra-asset account that represents the total depreciation recorded for an asset since it was acquired.

Straight-Line Method

A depreciation method that spreads the depreciable costs evenly over the asset's estimated useful life using the formula: $\frac{\text{Cost} - \text{Residual Value}}{\text{Estimated Useful Life}}$

Production Method (Sum of the Units or Output Method)

A depreciation method based on the assumption that depreciation is solely the result of use and relates to miles or units produced rather than the passage of time.

Declining-Balance Method

An accelerated method that results in relatively large amounts of depreciation in the early years of an asset's life and smaller amounts in later years, assuming assets are most efficient when new.

Double-Declining-Balance Rate

A rate calculated as twice the straight-line percentage (e.g., for a 5-year asset, $\frac{100\%}{5} \times 2 = 40\%$).

Capitalization of Borrowing Costs (IAS 23)

The process of adding interest costs to the cost of an asset if they are directly attributable to the acquisition, construction, or production of an asset and would have been avoided if the expenditure had not been undertaken.

Intangible Assets

Non-current intellectual or patented property such as Patents, Copyrights, and Goodwill.