Ch15 Acc. - Accounting For Non-Current Assets

Front 1

Sundry creditor (Current liability)

Back 1

When a firm purchases an asset other than stock on credit, a separate sundry creditor account, must be created in the General Ledger.

Front 2

Reducing balance method:

Back 2

A method of depreciation that assumes the asset will contribute more to revenue at the start of its life than its end.

Front 3

Selecting a depreciation method: we must consider the revenue-earning pattern of the asset

Back 3

-If the asset contributes evenly to revenue, and its cost is consumed evenly, over its life, the s/line method should be used.
-If the asset contributes more to revenue, and its cost is consumed more, at the start of its life and less as it ages, the reducing balance method should be used.

Front 4

Consistency/Comparability

Back 4

-Consistency demands that one a method is chosen, than method should be used from one period to the next. This allows reports to be compared from one period to the next, maintaining Comparability.

Front 5

Recording the disposal of a NCA

Back 5

1. Transfer the carrying value (cost price of the asset)
2. Record the proceeds from the sale (selling price)
3. Transfer the profit or loss on disposal of the asset.

Front 6

Loss/Profit on disposal of asset

Back 6

Loss: where the proceeds from the disposal of an asset is less than its carrying value or its carrying value is greater than the proceeds from its sale
Profit: where the proceeds from the disposal of an asset are greater than its carrying value.

Front 7

Trade in

Back 7

When a firm uses the proceeds from the sale of a non-current asset to reduce the amount payable from the purchase from a new non-current asset.

Front 8

Reasons for loss on disposal: Under-depreciation - when insufficient depreciation has been allocated, so that the carrying value of the asset is overstated

Back 8

•The estimated residual value was too high
•The original estimates did not anticipate that the asset would be damaged. Thus reducing its residual value, and could decrease its useful life below what was originally anticipated
•The estimated useful life was too high
•The original estimates did not anticipate that the asset would be outdated by a technologically superior model.

Front 9

Reasons for profit on disposal: Over-depreciation - when excess depreciation has been allocated, so that the carrying value of the asset is understated

Back 9

•The estimated residual value was too low
•The estimated useful life was too low
•The original estimates did not anticipate that the asset would be in good condition. This would increase is residual value, and could also increase its useful life.
•The original estimates did not anticipate that the asset would be in high demand. This may be because it is rare, and would also increase its resale value.