Tangible Non - current Assets

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 Non current assets
Non-current assets are assets which are intended to be used by the
business on a continuing basis and include both tangible and
intangible fixed assets.
ASSETS EXPENSE/CAPEX REVENUE EXP/ OPEX
 Expenditure on the acquisition  Expenditure on current
of non-current assets acquired assets
for use in the business and not  Expenditure relating to
for resale running the business
 Expenditure on an existing non- Expenditure on maintaining
current asset to enhance the the earning capacity
asset or increasing its earning
capacity.
Recorded in SOFP Recorded in SOPL
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Capital expenditure Revenue (Operating)
(CAPEX)/ Asset expenditure/ OPEX/ other
(capitalized) expenditure expenditure
 purchase price  repairs
 delivery costs  Renewals
 legal fees  Repainting
 subsequent enhancement or  Administration
improvement expenditure  general overheads
 trialling and testing  training costs
 wastage

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IAS 16 - Property, Plant, Equipment
 Definition
 Recognition
 Measurement: initial & subsequent measurement
 Depreciation
 Disposal
 Revaluation
 Disclosure

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1. Definition: PPE are tangible items that:
 are held for use in the production or supply of goods or
services; for rental to others; for administrative
purposes; and
 are expected to be used during more than one period.

2. Recognition: The cost of an item or PPE shall be

recognized as an asset if, and only if:
 it is probable that future economic benefits associated with
the item will flow to the entity; and
 The cost of the item can be measured reliably.
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 3. Measurement

Initial Measurement: Subsequent Measurement:

At Cost Cost Model
Or
Revaluation Model

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 Initial Recognition: At Cost
 Tangible non-current assets should initially be recorded at
Cost.
 Cost includes:
 Purchase price excluding sale taxes, trade discounts
but including import duties.
 Directly attributable costs (cost of site preparation,
initial delivery and handling costs, installation and
assembly costs, testing cost, Professional fees)
 Initial estimate of the cost of dismantling and
removing the item and restoring the site in which it
is located.
7 Cost may not be included?
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 Subsequent measurement after initial recognition
At Carrying amount (CA)
Cost Model
CA = Cost - Accumulated Depr - Accumulated Impairment losses
Revaluation Model
CA = Re valued amount (Fair value) - subsequent accumulated Depr
- Accumulated Impairment losses
Subsequent expenditure after initial recognition
+ Expenditure which improves condition of asset beyond the previous
performance should be recognized as assets (added to CA). Eg extent
useful life, improve output's quality, reduce operating cost...
+ Other expenditures (repair, maintenances…) should be recognized as
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an expenses 8
4. Depreciation
 Depreciation is the systematic allocation of the depreciable
amount of an asset over its estimated useful life.
Depreciable amount = Cost - Residual value
 Residual value = expected proceeds/scrap value at the end
of the asset’s useful life (disposal value - disposal cost)
 Useful life is either:
 Period over which depreciable asset is expected to be used, or
 Numbers of production or similar units expected to be
obtained from the asset

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 Depreciation method
 Straight line method

Cost – Residual value

Depreciation charge =
Expected useful life

 Diminishing (Reducing) balance method

Depreciation charge = Carrying value x depr rate (%)

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Accounting entry
Dr Depreciation expense (SPL)
Cr Accumulated depreciation (SOFP)
 The depreciation expense account is included in SOPL
 The accumulated depreciation account is included in
SOFP and is off-set against the total cost of non-current
assets to arrive at net book value or carrying value

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 Note to depreciation
Depreciation method should apply consistency from year to
year. Change in depreciation method, useful life:
If entity wants to change dep. method, do not restated
previous depreciation.
If entity believe should change the depreciation
methods for more suitable, the remaining life of asset will
be affected.
The previous depreciation is NOT required to restate
(No retrospective)
If entity wants to change useful life, the remaining
life will be used for remaining NBV.
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5. Disposal of non current asset
When an asset is permanently withdrawn from
use, sold or scrapped, no future economic benefits are
expected from disposals. Assets' cost and accumulated
depreciation must be withdrawn from SOFP
If asset is disposed, disposal gains or losses
(disposal proceed – carrying amount) must recognized
as income/expense in the SOPL.
Sales proceeds > CA = profit on disposal
Sales proceeds < CA = loss on disposal
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 Disposal Account and Accouting treatment
Disposal
(1) Original cost X (2) Accumulated depreciation X

(3) Disposal Proceeds X

(4) Gain on disposal Bal (4) Loss on disposal Bal
____ ____
X X
____ ____

Step 1: Remove Cost of NCA

Step 2 : Remove Accumulated depr
Step 3: Account for sales proceed
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Step 4: Balancing off Disposal acc to find gain/loss on profit 14
Disposal for cash Disposal by part-
consideration exchange

(1) Dr Disposal a/c (1) Dr Disposal a/c

Cr NCA cost account Cr NCA cost account
(2) Dr Accumulated (2) Dr Accumulated
depreciation depreciation
Cr Disposal a/c Cr Disposal a/c
(3) Dr Cash (3) Dr NCA cost account
Cr Disposal a/c Cr Disposal a/c
(4) Dr NCA cost account
Cr Cash
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 6. Revaluation of non-current assets
An entity may choose to revalue its assets rather than
hold them at cost - this is a choice of accounting policy.
Revaluation model: carry the asset at a revalue
amount: fair value less any subsequent accumulated
depreciation and any accumulated impairment losses. This
model should be used only if the item can be measured
regularly and reliably.

CA = Revalued amount (Fair Value) - Subsequent Accumulated Depr

- Accumulated Impairment losses
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 6. Revaluation of non-current assets
 Revaluations should be carried out regularly
 If an item is revalued, the entire class of assets to which
that asset belongs should be revalued
 When a non-current asset is revalued, depreciation is
charged on the revalued amount
 Positive Revaluation (increase in value):
+ represents at OCI ( SOPL and OCI) and Revaluation
surplus (SOFP) or
+ represents the reversal of previous revaluation
decrease of the same asset, in that case it should be
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recognised in SOPL
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 Negative revaluation (Decrease in value) is recognized
as an expense to the extent that it exceeds any amount
previously credited to the revaluation surplus relating to
the same asset.
 When a revalued asset is disposed of, any revaluation
surplus may be transferred directly to retained earnings,
or it may be left in equity under the heading revaluation
surplus. The transfer to retained earnings should not be
made through profit or loss.

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 Accounting entry
Revaluation surplus = revalued amount – CV
For a non – depreciated asset
Dr non-current asset – cost revaluation surplus
Cr revaluation reserve revaluation surplus

For a depreciated asset

Dr Accumulated depreciation depreciation to date
Dr Non-current asset – cost balancing figure
Cr Revaluation reserve revaluation surplus
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 Depreciation of a revalued asset
 Calculate depreciation charge on same basis as
normal, using the new revalued amount of the asset
rather than original cost
Dr Depreciation expense account
Cr Accumulated depreciation account
 In addition, a business can choose to make an annual
transfer of excess depreciation as follows:
Dr Revaluation reserve
Cr Retained earnings
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 Disposal of a revalued asset
 Calculate gain or loss on disposal on as normal
using the revalued amount of the asset rather than
original cost, and account for the gain or loss in the
statement of profit or loss
 In addition, transfer the balance on revaluation
reserve to retained earnings as follows:
Dr Revaluation reserve
Cr Retained earnings

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 7. Presentation and Disclosure of PPE
SOFP Aggregate CA of PPE Notes:
SOPL and OCI:  Disclosure of depreciation
- Depreciation charge methods and rates used
included within relevant  Disclosure of movements
expense categories in cost/carrying value and
- Any revaluation in the year accumulated depreciation in
is included within OCI the year
 Disclosure of details of
any revaluations in the year

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 Asset Register
An asset register is used to record all non-current assets
and is an internal check on the accuracy of the nominal ledger. It
is also parts of internal control system.
Data kept in an Asset register:
 Internal reference number (for physical identification purposes)
 Description of asset
 Location of asset
 Department which “owns” asset
 Purchase date
 Cost
 Depreciation method and estimated useful life
 Net book value (or written down value)
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