Ms.
Sanam Iqbal
NON - CURRENT ASSETS
Tangible Assets
Intangible Assets
Natural Resources
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25
TANGIBLE ASSETS
Tangible Resources i.e.
physically existing
fixed assets
Also known as
Property, Plant & Equipment
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Stages in the life of Tangible Assets
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Acquisition of a Tangible Asset
When acquired Tangible
Assets are recorded at Invoice
cost.
Cost consists of list price
plus all the expenditures
necessary to acquire the
asset and make it ready
for its intended use
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Computation of cost of delivery truck
Delivery Truck
Cash Price Rs. 130,
000
Sales Tax 20,
000
Painting & Lettering 10,
000
___________
Cost of delivery truck
Rs.160,000 6
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Entry to record purchase of truck
2008
Jan 2 Purchased a delivery truck for
Rs. 160, 000 cash.
Date Account Titles Debit Credit Rs.
Rs
2008 Delivery Truck 160, 000
Jan 02 Cash 160, 000
To record purchase of delivery
truck
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FIRST STAGE: - AQUISATION OF PLANT ASSETS
Question 1: -Wilmet College recently purchased new computing equipment for its
library. The following information refers to the purchase and installation of this
equipment:
[Link] list price of the equipment was $275, 000; however, Wilmet College qualified
for an education discount of 25, 000.
[Link] paid sales tax of $15, 000 at the date of purchase.
[Link] charges for delivery of the equipment totaled $1, 000.
[Link] costs related to the equipment amounted to $5, 000.
[Link] installation, one of the computer terminals was accidentally damaged by a
library employee. It cost the college $300 to repair this damage.
[Link] soon as the computers were installed, the college paid $4, 000 to print admission
brochures, featuring the library’s new, state-of-the-art computing facilities.
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DEPRECIATION
Depreciation is the
systematic allocation of
cost to expense
over the period, the plant
asset is used.
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Causes for Depreciation
Physical wear & tear
Obsolescence
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Factors affecting Depreciation
Cost
Estimated Useful
Life
Estimated Residual
Value
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Data that will be used to illustrate all the
methods
Cost Rs. 160,000
Estimated Residual Value Rs. 10, 000
Estimated Useful Life 3 years
Estimated depreciation rate 40 %
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STRAIGHT - LINE
Cost
Requires Estimated
Residual Value
Estimated Useful
Life
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Formula for Straight Line Method
The
The formula
formula for
for computing
computing annual
annual depreciation
depreciation expense
expense is:
is:
Depreciable
Depreciable Cost
Cost // Useful
Useful Life
Life (in
(in years)
years) == Depreciation
Depreciation Expense
Expense
Estimated
Depreciable
Residual
Cost
Value
Rs.160, 000 - Rs.10, 000 = Rs.150, 000
Estimated
Depreciable Annual
Useful
Cost Depreciation
Life (in
Expense
Years)
Rs.150, 000 ÷ 3 = Rs. 50, 000 15
Depreciation Schedule
Straight Line Method
Year Asset Cost Depreciation Accumulated Cost –
Expense Depre. Accum Dep =
Rs. Rs. Rs. Book Value
2008 160, 000 50, 000 50, 000 110, 000
2009 50, 000 100, 000 60, 000
2010 50, 000 150, 000 10, 000
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Adjusting entry at the year end
of each of the 3 years (SLM)
Date Account Titles Debit Credit
Rs Rs.
2008 Depreciation Expense – Delivery Truck 50, 000
Dec 31 Accumulated Depreciation 50, 000
To adjust depreciation expense for the year.
2009 Depreciation Expense – Delivery Truck 50, 000
Dec 31 Accumulated Depreciation 50, 000
To adjust depreciation expense for the year.
2010 Depreciation Expense – Delivery Truck 50, 000
Dec 31 Accumulated Depreciation 50, 000
To adjust depreciation expense for the year.
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FINANCIAL STATEMENTS
Income Statement (extract)
For the Year ended Dec 31
Gross Profit 2008 2009 2010
Less : Expenses Rs. Rs. Rs.
Depreciation Exp –
Delivery Truck
50, 000 50, 000 50, 000
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FINANCIAL STATEMENTS
Statement of Financial Position (extract)
December 31
ASSETS 2008 2009 2010
Rs. Rs. Rs.
Non-Current Assets
Property, Plant & Equipment
160, 000 160, 000 160, 000
Delivery Truck
50, 000 100, 000 150, 000
Less: Accumulated Depreciation
110, 000 60, 000 10, 000
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Entries in the first 2 stages
Acquisition
Delivery Truck 160, 000
Cash 160, 000
Depreciation
Adjusting Entries in all three years
Depreciation Expense 50, 000
Allowance for Depreciation 50, 000
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DECLINING BALANCE METHOD
Cost
Requires
Estimated
Depreciation Rate
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Formula for Declining-Balance Method
Book Value Estimated
at Beginning
X Declining Annual
of Year Balance Depreciation
Rate Expense
Rs. 160, 000 x 40 % = Rs. 64, 000
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Depreciation Schedule
Declining Balance Method
Year Asset Calculation Depreciation Accum Cost –
Cost (Book Expense Depre Accum Dep
Value X Rs. Rs. = Book
Rs. Dep Rate) Value
160, 000
2008 160, 000 X 0.4 64, 000 64, 000 96, 000
96, 000
2009 X 0.4 38,400 102, 400 57, 600
57, 600
2010 X 0.4 23, 040 125, 440 34, 560
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Disposal of a Tangible Asset
Tangible Asset is
credited
by the cost price.
Allowance for depreciation is
debited by the total
(at the time of disposal)
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Entry at the time of Disposal
Disposal
Allowance for Depreciation 150, 000
Delivery Truck 160, 000
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