Chap 7 : Non Current Assets and Depreciation
1. Tangible non-current assets and depreciation ( IAS 16)
- IAS 16: property plant, equipment PPE(land and building, plan and
machinery,fixture and fittings, vehicle, computer system, etc)
- The recognition of assets( how to calculate cost of PPE)
- The determination of their carrying amounts
- The depreciation charge chi phí khấu hao(depreciation methods)
Depreciation charge/ expense per year
Cost of PPE
- The cost of a non-current asset includes all amounts incurred to acquire the
asset and any amount that can be directlyattributable too bringing the asset to
the location and condition necessary for it to be capable of operating in the
way intended by management
- Directly attributable costs include:
+ purchase price
+ delivery costs
+ stamp duty and import duties(and irrecoverable VAT on cars)
+ costs of preparing the site for installation and assembly of te asset
+ professional fees,such as legal and architects’ fees
+ costs of testing wheter the asset is functioning
- Expenses such as general overhead costs, administrationcosts, training costs for
staff, fuel in a vehicle on delivery and licence fees for operating the asset
are not included as part of the total costs of the noncurrent asset
- The cost of subsequent capital expenditure on non-current asset will be added to
the cost of the asset, provided this expenditure enhances the benefits of the
non-current asset or restores any benefits consumted.
- Cost of major improvement or a major overhaul may be capitalised
- Cost of repairs that are carried out simply to maintain existing performance may
not be capitalised, they will be treated as expense of the reporting period in
which the work done and charged in full as an expense in that period
Note 1: A company can purchase a new PPE for cash or credit or in part –
exchange
Note 2: Usefull life = Estimatd economic life (rather than physical life)
2. The objective of depreciation
- Depreciation: the systematic allocation (hệ thống phân bổ)of the cost of an
asset, less its residual value(gt thanh lí ước tính), over its useful life.
- Useful life: the estimated economic life (rather than the potenial physical
life)of the non-current asset
- Residual value: the estimated amount that the entity would currently obtain from
disposing of the asset, after deducting estimated disposal costs.
- The cost of a non-current asset less its residual value represents the total
amount to be depreciated over its estimated useful life
Accounting concepts and depreciation
3. Calculating Depreciation
- When a non-current asset is depreciated, 2 thing
Mehods of depreciation
- Straight line basis
asstet cost −residual value
=monthly depreciation charge
months of useful life
- Reducing balance depreciation:
Carrying amount * %to be applied = annual depreciaiton charge
Note 1: applying a depreciation method consistently
- A business can choose which method of depreciation to apply to its PPE
- It should be applied consistently from reporting period to reporting merhod
Note 2: depreciating subsequent expenditure
- Subsequent expenditure incurred to improve or enhance the asset earning capital
=> should be capitalised. It should be depreciated seoarately from the initial
asset. It will be depreciated over the remanig
Note 3: reviewing and changing the deprecition method
- The depreciation method used should be reviewed annually. If there are any
changes in the expected patten of use the aaset => should change the method
- The remaining arrying amount is depreciated under
Note 4: reviewing and changing carrying amount: fall in value (impairment loss)
When the value of a no current asset falls to less than its carrying amount and the
fall in value will not be recovered from future use of the asset => impairment loss
=> written downn to its new value. The impairment loss become an expense , and
cahrge to P&L
4. Accounting for depreciation
- A depreciation expense account:
Depreciation charge during reporting period => P&L
- A accumulated depreciation account => assets in the satement of financial
postion (have credit balance)
Dr depreciation expense
Cr accumulated depreciation account
5. Non current asset disposals
- Non curretn asset can be sold off during
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