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DEPRECIATION &

NON CURRENT ASSETS


CHAPTER 1

Learning Objectives

Non Current Assets

Assets which are expected to be used more than


one accounting period
Have a limited useful life
Held by enterprise for use in the running of
business
Examples: Land and buildings, Plant and
machinery, Fixtures and fittings, and Motor
vehicles

Depreciation for Non


Current Assets
Non-current assets are not charged to the income
statement when they are purchased.
They are retained in the statement of financial
position.
The cost of the asset, less any residual value
estimated to exist at the end of its useful life, is
referred to as the depreciable amount.
This is charged to the income statement over the
useful life of the asset.
This is referred to as depreciation. The purpose
is to spread the cost of the asset over its useful
life.

Depreciation for
Non Current Assets

Causes Of
Depreciation

Back

Cost of Assets
CAPITAL
EXP

COST OF
ASSETS
REVENUE
EXP

Example

Method of
Depreciations

Straight Line Method


The amount of depreciation for each
accounting period will be the same

Annual depreciation
= Cost Scrap value
Estimated Useful life
or
= % x (Cost)

Reducing Balance Method


(RBM)

Depreciation- Exercise
A vehicle costs RM20,000 and has a useful life of 5
years. No residual value. Reducing balance is at
50%.
Straight line
$4,000 a year is charged for 5 years
Reducing balance (50%)
Year 1 : 20,000 x 50% = 10,000
Year 2 : (20,000 10,000) x 50% = 5,000
Year 3 : (20,000 10,000 5,000) x 50% = 2,500
Year 4 : (20,000 10,000 5,000 2,500) x 50% =
1,250
Year 5 : Remaining balance 1,250
Note that under the reducing balance method more

DepreciationIf the useful life of an asset changes this will affect


Exercise
the depreciation charged.
Example:
An asset is purchased for RM30,000 with a useful life
of 6 years and no residual value. It is depreciated
on a straight line basis.
After 3 years it is decided that the asset will actually
be productive for another 5 years. Depreciation for
years 4-8 will be as follows:
RM
Original cost
30,000
Depreciation years 1-3 (30,000 x 3/6)
(15,000)
Carrying amount at end of year 3

Disposal of Non
When a non-current
asset is Asset
disposed of , both the
Current
asset and the accumulated depreciation are
removed from the relevant ledger accounts and
posted to a disposal account:
Example:
An asset was bought for RM25,000 and accumulated
depreciation is RM16,000. It has been sold for
RM10,000.
CREDIT Non-current asset account
25,000
DEBIT Depreciation account
16,000
DEBIT Disposal account
9,000
The disposal account will now appear as follows:
DEBIT Carrying value of asset
9,000

Final Presentation
Statement of Comprehensive Income
for the year ended..
RM
Less: Expenses
Depreciation expenses
xxx
Loss on disposal
xxx
Add: other income
Profit on disposal
xxx

Final
Presentation
Statement
of Financial Position as at
Non-current Assets:
Cost
Machinery
Motor vehicles

xxx
xxx

Accumulated
depreciation
xxx
xxx

NBV
xxx
xxx

Consistency
Concept