Session 9 Non-current assets
　　Main contents:
　　1.Basic concepts of non-current assets
　　2.Depreciation of non-current asset
　　3.Disposal of non-current asset
　　4.R*uation of non-current asset
　　9.1 Non-current assets
　　Non-current assets are distinguished from current assets by the following characteristics: they are
　　- Long-term in nature
　　- Not normally acquired for resale
　　- Could be tangible or intangible
　　- Used to generate income directly or indirectly for a business
　　- Not normally liquid assets (i.e.not easily and quickly converted into cash without a significant loss in value.)
　　●Capital and revenue expenditure
　　Capital expenditure:
　　- Expenditure on the acquisition of non-current assets required for use in the business, not for resale.
　　- Expenditure on existing NCA aimed at increasing their earning capacity.
　　- Long-term in nature: the business intends to receive the benefits of the expenditure over a long period of time.
　　Revenue expenditure:
　　- Expenditure on current assets
　　- Expenditure relating to running the business ( such as administration costs.)
　　- Expenditure on maintaining the earning capacity of NCA e.g.repairs and renewals.
　　●Non-current registers
　　A record of the NCA held by a business.These form part of the internal control system of an organization.
　　Details held may include:
　　- Cost
　　- Date of purchase
　　- Description of asset
　　- Serial/reference number
　　- Location of asset
　　- Depreciation method
　　- Expected useful life
　　- Net book value
　　●Acquisition of a non-current asset
　　Initial cost:
　　- The cost of a NCA is any amount incurred to acquire the asset and bring it into
　　working condition.
　　- All non-current assets must initially recognized at cost.
　　Cost = purchase price
　　- Trade discount
　　- Rebates
　　+ Direct cost (Delivery cost, Legal)
　　Delivery cost is the cost that bringing it into working condition for
　　Its intended use
　　Initial costs excludes: admin costs
　　General overheads
　　Abnormal costs
　　Any costs incurred after asset is ready for use
　　e.g.Excludes: revenue expenditure such as
　　●Repairs
　　●Renewals
　　●Repainting
　　Subsequent expenditure:
　　Can only be recorded as part of the cost (or capitalized), if it enhances the benefits of the asset, i.e.increases the revenues capable of being generated by the asset.
　　The correct entry to record the double entry is:
　　Dr.Non-current asset
　　Cr.Cash/ Bank/ Payables
　　A separate cost account should be kept for each category of non-current asset, e.g.motor cars, fixture and fittings
　　Example:
　　Bilbo Baggins started a business providing limousine taxi services on 1 January 20x5.In the year to 31 December he incurred the following costs:
　　$
　　Office premises　　　　　　　　　　　　　　　　　　 250,000
　　Legal fees associated with purchase of office　　　　10,000
　　Cost of materials and labour to paint office in　　　　 300
　　Bilbo’s favourite colour, purple
　　Mercedez E series estate cars 　　　　　　　　　　　116,000
　　Number plates for cars　　　　　　　　　　　　　　　　　210
　　Delivery charge for cars　　　　　　　　　　　　　　　　180
　　Road licence fee for cars　　　　　　　　　　　　　　　 480
　　Drivers’ wages for first year of operation　　　　　60,000
　　Blank taxi receipts printed with Bilbo　　　　　　　　　450
　　Baggin’s business name and number
　　What amounts should be capitalized as “ Land and buildings” and “ Motor vehicles”?
　　Land and　　　　　Motor
　　Buildings　　　　Vehicles
　　$ 　　　　　　　　$
　　A.　　　　　　　　　　　　260,000　　　　　 116,390
　　B.　　　　　　　　　　　　250,000　　　　　 116,870
　　C.　　　　　　　　　　　　250,300　　　　　 116,390
　　D.　　　　　　　　　　　　260,300　　　　　 116,870
　　Solution:
　　The correct answer is A
　　Land and buildings
　　$
　　Office premises　　　　 250,000
　　Legal fees　　　　　　　 10,000
　　260,000
　　●The cost of the purple paint does not form part of the cost of the office and so should not be capitalized.Instead it should be taken to the income statement as a revenue expense.
　　Motor vehicles
　　$
　　3 Mercedes E series　　　 116,000
　　Number plates　　　　　　　　 210
　　Delivery charges 　　　　　 　180
　　116,390
　　- The number plates are one-off charges which form part of the purchase price of any car.
　　- The road licence fee, drivers’ wages and receipts are ongoing expenses, incurred every year.They cannot be capitalized, but should be taken to the income statement as expenses.