Non current assets - slides
Non current assets - slides
Lecture Slides #3
Non-Current Assets
Learning Outcomes:
NATURE
The carrying amount refers to the amount at which an asset is recognised after
deducting accumulated depreciation and accumulated impairment losses, i.e. its
net book value.
What is an asset?
Past event
Intangible assets
This is an identifiable asset without physical substance. This
includes goodwill, patents and trademarks.
Determining the cost of a non-current
asset
Components of cost
The cost of an asset comprises:
The Purchase Price less trade discounts and rebates
Any costs that are directly attributable to bringing the asset to the location and
condition necessary for the asset to be used as intended, for example:
Site preparation costs :
Note that the interest and cost of petrol are operating costs
and are not capitalised as a cost of the asset, hence they will
be accounted for as expenses for the period.
Example 2
Required:
Calculate the purchase price to be charged in the plant
and machinery account.
Determining the useful life of
an asset
The useful life is the period over which a depreciable asset
(that loses value as it is used) is expected to be used by the
business.
The useful life of an asset may be affected by numerous
factors, including:
The perceived status of owning modern assets
Technological changes
Depreciation of assets
Depreciation refers to the expense of using an asset (PPE)
PPE (except for land and buildings) depreciate
Formula
Depreciation = (Cost – Scrap value)/Useful life
Vehicle
Cost E120,000
10
= 105,000/10
= E10,500
The vehicle will depreciate by E10,500 for the next ten years
The diminishing-balance
method
Also known as the reducing balance method.
Formula
Depreciation = (Cost – accumulated depreciation) x
deprecation percentage
Example – Depreciation charge
(Diminishing method)
Vehicle
Cost E120,000
Formula
Depreciation =
OR
E'000 E'000
Cost XX Disposal proceeds XX
Accumulated
depreciation XX
Profit
Loss on disposal XX on disposal XX
XXXX XXXX