CH 8 Non-Current Assets and Depreciation

What is capital expenditure?

The purchase of an NCA or expenditure that improves earning capacity.

1. Purchase price

2. Delivery Costs

3. Legal fees

What is Revenue expenditure?

Non-capital expenditures like repairs. They do not increase the earning capacity.

What is depreciation?

The allocation of the depreciable amount of an asset over the useful amount.

What is residual value?

The estimated amount an entity would attain if sold off at the end of useful life.

What is useful life?

The period the asset is believed to be available for use by the entity.

How do you calculate the depreciation charge for straight-line?

[Cost-RV]/Useful Life OR Percentage x Cost

How do you calculate depreciation charge for reducing balance?

Percentage x Carrying Amount or CA = Original Cost x (Depreciation Charge) to the power of years.

What is the journal entry for depreciation?

Dr Depreciation Expense Cr Accumulated Depeciation

If the method of depreciation changes to straight-line mid-way, how is subsequent depreciation worked out?

(CA @ date changed - RV)/Remaining UL

If the method changes to reducing balance, how is subsequent depreciation worked out?

Percentage x CA @ date changed

How do you work out profit from a disposal?

Profit = Proceeds - CA

What are the journal entries in the disposal process?

1. Dr Disposals Cr Cost

2. Dr Accumulated Dep Cr Disposals

3. Dr Cash Cr Disposal

If the Disposal c/f is on the credit side, it is a loss. If on the debit side, it is a profit.

What are the journal entries in a part-exchange agreement?

1. Dr Disposal Cr Cost

2. Dr Accumulated Dep Cr Disposals

3. Dr PPE Cost (new asset) Cr Disposals

4. Dr PPE Cost Cr Cash

If the Disposal c/f is on the credit side, it is a loss. If on the debit side, it is a profit.

What is the purpose of an NCA register?

1. A list of all NCAs owned by business

2. Broken down by location and type

3. Good to keep track

What are intangible assets?

1. No physical form (license)

2. Intangible assets are amortised, which is recognised in the SPL

3. Those without a UL will be reviewed annually

4. Internally generated intangible assets (brand names) do not go on the SFP.