Professional Documents
Culture Documents
Cost includes the purchase price plus directly attributable costs Directly attributable costs include: - delivery - installation/ testing - professional fees Directly attributable costs exclude: - maintenance contracts - administration and general overheads - staff training
Chapter Summary
Capital expenditure: acquisition, replacement or improvement of non-current assets Revenue expenditure: trading expenses or the repair, maintenance and service of non-current assets
Cost
Revaluations
Depreciation
'The wearing out of an asset as it generates revenue' Accounting adjustment: Dr Depreciation expense Cr Accumulated depreciation
Disposals
Steps: (1) Remove the cost of the asset (2) Remove the accumulated depreciation charged to date (3) Account for sales proceeds (4) Balance off disposal account to find the profit or loss on disposal Profit/ loss on disposal calculation: Proceeds X Less: NBV (X) Profit/(loss) X/(X)
Steps: (1) Adjust cost to revalued amount (2) Remove the accumulated depreciation charged to date (3) Put the balance to the revaluation reserve The balance transferred to the revaluation reserve is: 'revalued amount net book value' Revaluation is a choice of accounting policy. All assets in the same class must be revalued Depreciation is now based on the revalued amount
Depreciation charge is higher in the earlier years of the asset's life Formula: Depreciation rate (%) net book value
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