Accounting Fundamentals: Chapter 10 - Non-Current Assets & Depreciation

What is capital expenditure?

Spending on assets used for more than one accounting period.

What is revenue expenditure?

Day-to-day costs charged to profit or loss.

What costs are included in the cost of a non-current asset?

Purchase price plus costs to bring the asset into use.

What is useful life?

The period an asset is expected to be used by the business.

What is depreciation?

The systematic allocation of an asset’s cost over its useful life.

Why is depreciation charged?

To match the cost of the asset to the periods it benefits.

Which non-current assets are depreciated?

All tangible assets except land.

What is the carrying amount of an asset?

Cost less accumulated depreciation.

What is the depreciable amount?

Cost minus residual value.

What is straight line depreciation?

An equal depreciation charge each period.

What is the straight line depreciation formula?

(Cost − residual value) ÷ useful life.

What is reducing balance depreciation?

A fixed percentage of the carrying amount each year.

How do you calculate carrying amount under reducing balance?

Cost × (1 − rate)ⁿ.

What is the double entry for depreciation?

Dr Depreciation expense, Cr Accumulated depreciation.

Where does depreciation appear in the accounts?

Expense in profit or loss, accumulated depreciation in SOFP.

How do you calculate profit or loss on disposal?

Proceeds minus carrying amount.

What are the three steps to record a disposal?

Remove cost, remove accumulated depreciation, record proceeds.

Where is a disposal profit or loss recorded?

Profit in other operating income, loss in operating expenses.

How is a part-exchange recorded?

Trade-in value is treated as disposal proceeds.

What makes up the cost of a new asset in a part-exchange?

Cash paid plus trade-in value.

What is the asset register?

A list of all non-current assets owned by the business.

What is an intangible non-current asset?

A long-term asset with no physical substance.

How are research costs treated?

Always expensed to profit or loss.

How are development costs treated?

Capitalised if criteria are met, then amortised.