IntrotoAccWeek 8 Lecture-2

IntrotoAccWeek 8 Lecture-2 - Introduction to Accounting...

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Introduction to Accounting Module 8 Non Current Assets Liabilities 1
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CHAPTER 20 Non-current assets: acquisition and depreciation
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Any asset with physical substance that is expected to be used over more than 1 year Because future economic benefit of property, plant and equipment will be received over 2 or more accounting periods Depreciable amount must be allocated in a systematic manner over useful life to measure depreciation 3 WHAT IS PROPERTY, PLANT AND EQUIPMENT?
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Must be accounted for at cost The amount of cash or the fair value of other consideration given to acquire an asset Cost includes Purchase price Any directly attributable costs Estimate of costs of dismantling, removing and restoring Fair value has its usual definition 4 DETERMINING COST OF PROPERTY, PLANT AND EQUIPMENT
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List price of the machine $22 000 Less: Trade discount (10% x $22 000) 2 200 19 800 Less: GST (1/11) 1 800 Purchase price 18 000 Freight inwards (net of GST) 820 Installations costs (net of GST) 675 Cost of machine $19 495 5 EXAMPLE – DETERMINING COST OF PROPERTY, PLANT AND EQUIPMENT
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Other Issues Cost recognised should be reasonable and necessary Deferred payment may require recognition of interest component Land and land improvements Borrowing costs Qualifying assets 6 DETERMINING COST OF PROPERTY, PLANT AND EQUIPMENT
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Purchase of many assets at once: Total cost apportioned over the identifiable assets Each asset recorded at individual cost Cost allocated on basis of fair value Why allocate cost? Reported in different accounts Land not subject to depreciation Office furniture and building have different economic lives 7 APPORTIONING THE COST OF LUMP-SUM ACQUISITIONS
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Nature of depreciation Expected usage (by reference to asset output) Expected wear and tear Technical and commercial obsolescence Legal or similar limits (eg. expiry dates of leases) Cost needs to be apportioned over expected useful life 8 DEPRECIATION
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9
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Useful life is defined as The period over which an asset is expected to be available for use by an entity; or The number of production or similar units expected to be obtained from the asset Residual value is the estimated amount that an entity could currently obtain from disposal of the asset after deducting the estimated costs of disposal Depreciable amount is Cost less Residual Value 10 DETERMINING THE AMOUNT OF DEPRECIATION
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