1How do you record credit purchase of non-current assets?
Dr NCA Cr Trade payables - NAME
2What is capital expenditure?
These are costs to buy and bring the NCAs to their intended use, to enhance the NCAs and provide benefits for more than one year recorded as NCA
3What is revenue expenditure?
Costs to operate, repair and maintain the non-current assets in working condition & provide benefits which will be used within one year recorded as expense
4What is materiality theory? (1st mark)
It states that relevant information should be reported in the financial statements if it is likely to make a difference to the decision-making process.
5What is materiality theory? (2nd mark)
If the amount spent on a non-current asset is insignificant to decision-making when compared to the size of the income, profit, asset or equity of the business, it does not need to be reported in the statement of financial position as a non-current asset. Instead, it can be classified as revenue expenditure and be reported in the statement of financial performance as an expense.
6What is the effect of wrongly classifying capital as revenue expenditure on NCA, other expenses & profit
Understated, Overstated & Understated respectively
7What is the effect of wrongly classifying revenue as capital expenditure on NCA, other expenses & profit
Overstated, Understated & Overstated respectively
8What is depreciation?
It is the allocation of the cost of a non-current asset over its estimated useful life
9What is the formula for NBV
Cost – Accumulated Depreciation
10How is depreciation charged?
In accordance with the matching theory which states that depreciation expense will be matched against the income earned in the same financial period to determine the profit for the period.
11What theory is linked to depreciation methods?
Consistency theory states that a business should use the same method of depreciation and rate of depreciation every financial period to enable meaningful comparison of the NBV of NCAs over time.
12What is the straight-line method of depreciation?
Straight-line method assumes that the non-current assets provide the same benefits throughout their estimated useful life.
13What are 2 formulas for straight-line method of depreciation?
$Depreciation = \frac{Cost - scrap \space value}{Estimated \space useful \space life} \space OR \space Depreciation = (Cost - scrap \space value) \times rate \space of \space depreciation \space (\%)$
14What is the reducing-balance method of depreciation?
Reducing-balance method assumes that the non-current assets provide more benefits in the earlier years than in its later years.
15What is the formula for reducing-balance method of depreciation?
$Depreciation = Net \space book \space value \times rate \space of \space depreciation (\%)$
16How to record depreciation expense?
Dr Depreciation of NCA Cr Accumulated depreciation of NCA
17What are the 4 steps to selling non-current asset?
1. Removal of NCA 2. Removal of accumulated depreciation 3. Collection of sales proceeds 4. Transfer of gain / loss on sale of NCA
18What is the entry for removal of NCA?
Dr Sale of NCA Cr NCA
19What is the entry for removal of accumulated deprecation?
Dr Accumulated deprecation Cr Sale of NCA
20What is the entry for collection of sales proceeds?
Dr CAB / CIH / XXX Recv Cr Sale of NCA
21What is the entry for gain / loss on sale of non-current asset
Gain: Dr Sale of NCA Cr Income Summary. Loss: Dr Income Summary Cr Sale of NCA
22What is the formula for gain/loss on sale of NCA?
$Cost - Accumulated \space Depn - sales \space proceeds$