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Non-current Assets
E3 Depreciation of
Non-current Assets
Learning objectives
After studying this topic, you should be able to:
(A)Distinguish between capital expenditure and
revenue expenditure
(B)Explain the objective of charging depreciation
(C)Calculate the amount of depreciation under
different methods
E3 Depreciation of
Non-current Assets
Learning objectives
After studying this topic, you should be able to:
(D) Show the entries for depreciation and disposal
of non-current assets
(E) Prepare financial statements with depreciation
charges and the profit or loss on disposal of
non-current assets
A. Types of expenditures
1. Capital expenditure
2. Revenue expenditure
A. Types of expenditures
Complete the notes and exercises (Part A)
Matching concept
The _________
expenses recognised in each
accounting period have to be matched with
the _________
revenues or benefits that they generate
in the same period.
A non-current asset provides _________
long-term
benefits and therefore its cost should not be
wholly recognised as an expense in the period
of __________.
acquisition
Matching concept
Dr Depreciation account
Cr Accumulated depreciation account
Step 2: Transfer the total of depreciation
charged to the profit and loss account at the
end of the accounting period
Dr Profit and loss account
Cr Depreciation account
2009
Dec 31 Acc. dep
Depreciation: Lorries
$ 2009
3,750 Dec 31 Profit and loss
$
3,750
$
3,750
2011
$
value
2009
Dec 31 Acc. dep
2010
Dec 31 Acc. dep
Depreciation: Lorries
$ 2009
3,750 Dec 31 Profit and loss
2010
3,750 Dec 31 Profit and loss
$
3,750
3,750
$
3,750
3,750
3,750
7,500
2011
$
2009
Dec 31 Acc. dep
2010
Dec 31 Acc. dep
2011
Dec 31 Acc. dep
Depreciation: Lorries
$ 2009
3,750 Dec 31 Profit and loss
2010
3,750 Dec 31 Profit and loss
2011
3,750 Dec 31 Profit and loss
$
3,750
3,750
3,750
$
3,750
3,750
3,750
7,500
7,500
3,750
11,250
2011
$
16,000
(11,250)
4,750
C. Commonly used
depreciation methods
1. Straight-line method
2. Reducing-balance method
3. Usage-based method
C. Commonly used
depreciation methods
Complete the notes and exercises (Part C)
Exhibit 3.5
Exhibit 3.5
2011
Jan 1 Lorries
Disposal: Lorries
$ 2011
16,000
Exhibit 3.5
2011
Jan 1 Lorries
Disposal: Lorries
$ 2011
16,000 Jan 1 Acc. Dep
$
7,500
Exhibit 3.5
2011
Jan 1 Lorries
Disposal: Lorries
$ 2011
16,000 Jan 1 Acc. Dep
Jan 1 Cash
$
7,500
4,500
Exhibit 3.5
Disposal: Lorries
$ 2011
$
16,000 Jan 1 Acc. Dep
7,500
Jan 1 Cash
4,500
Dec 31 Profit and loss
Loss on disposal 4,000
16,000
16,000
Exhibit 3.6
D. Disposal of noncurrent
assets
The cost price of the new lorry ($30,000) is equal
Exhibit 3.6
46,000
2011
Jan 1 Lorries
46,000
Disposal: Lorries
$ 2011
$
16,000 Jan 1
Accumulated depreciation 7,500
1
Cash
5,000
Dec 31 Loss on disposal
3,500
16,000
16,000