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9 Cards in this Set
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Non-current assets - are economic resources that will not be used up or converted into cash within the normal yearly operating cycle of the business
E.g. furniture, motor vehicle, computer equipment, buildings, land, fencing, copyrights, patents, licenses, trademarks |
Limit life of assets: ---wear and tear ---technical obsolesence - becomes out of date because of technological advancements ---commercial obsolescence - reduction in market demand |
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Cost of any non-current asset is the sum of the costs - capital expenditure
Insurance is not capital because it is recurrent
Revenue - ordianry repairs, low coct items of benefit, unnecessarily costs
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Capital expenditure - significant cost that increases the value of non-current asset
adds to useful life
E.G. purchase price, cost of preparing asset, significant additions to asset, significant improvements |
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Revenue Expenditure - cost relating to non-current assets that is incurred to maintain, but not to extend, the useful of asset
ordinary, small, recurring costs that are incurred to maintain asset
E.g. ordinary repairs and maintenance, low-cost items, unnecessarily costs |
Capital expenditure recorded as ASSET
Revenue expenditure recorded as EXPENSE
Cash purchases recorded in 'cash payments journal'
Credit Purchases recorded in 'general journal' |
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depreciating assets - those were the useful life of the asset decreases over time
Depreciation - allocation of the cost of the asset to the accounting periods in which it is expected that the asset will contribute to the production of revenue - EXPENSE ACCOUNT
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Accumulated Depreciation - the aggregate of the depreciation expense at a given point in time made in respect to a particular asset - -ASSET
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Type of depreciation three factors: 1. basis chosen for assessing the useful life 2. specific method adopted for calculating depreciation expense 3. estimate of the net amount recoverable of the ultimate disposal of the asset |
To calculate annual depreciation: --original cost of the asset --useful life --residual value --method |
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Straight line cost of an asset is sometimes judged as being constant over the life of asset, applied to assets with low obsolescence e.g. buildings, furniture
straight line = (original-residual)/useful life |
Reducing Method most suitable for assets that give most of their service potential in early life E.g. highly technical equipment, highly mechanised machinery
reducing method = rate * diminished value |
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Rate
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Asset Register - made up of separate spreadsheet for each individual asset
E.g. Truck - make, purchase price,, supplier, residual balue, depreciation, location, registration no, engine no, insurance cover, dep. method, disposal |
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When useful life of asset expires two aspects need to be considered: 1. amounts relating to the asset and the accumulated dep. accounts need to be removed from the accounting records 2. disposed of greater or less than book value, gain or loss on disposal of the asset must be calculate and brought to account |
Disposal account is created specifically for the purpose of determining this loss or gain on sale of the asset
DISPOSAL ACCOUNT - a working account that contains all the information regarding the asset to be disposed of and faciliates the calculation of a fain (loss) on disposal |
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Summary of Disposal 1. adjust the depreciation any part-year allocation and post to ledger 2. transfer the original cost price to the asset to the disposal account 3. transfer the accumulated dep. amount relating to the asset to the disposal account
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4. record the asset's trade in value 5. Assess the gain (loss) on the sale of the aset and transder to a gain (loss) on disposal a/c 6. record the purchase of the new asset (if applicable) |
