CHAP 1 : ACCOUNTING FOR NON-CURRENT ASSET

SPESIFIC OUTCOME :

1. Understand non-current asset2. Understand the concept of depreciation3. Understand methods of depreciation4. Prepare the accounting record for non-

current asset

ACCOUNTING FOR NON-CURRENT ASSET

Asset

Non Current Asset/Fixed Asset

Tangible Asset/PPE

Example ?

Intangible Asset

Example?

Current Asset

Example ?

Determining & Recording Non Current Asset Cost

Based on MFRS 116 – refer pg 3

Depreciation

Depreciation vs amortization vs Depletion

Methods of Depreciation

Straight Line/Reducing Balance /Sum of Years Digit/ Units of Production Method

DISPOSAL OF ASSET

EXAMPLE 1.6 ( pg 14 ):

An equipment bought on 1 Jan 2003 RM40,000, depreciated 10% straight line method was SOLD at RM16,000 on 31 Dec 2008. AD is RM 24,000.

Journal entry :

31/12/08 Dr Cash RM16,000 Accu. Depre RM 24,000

Cr Equipment RM 40,000

EXAMPLE 1.7 ( pg 14 ):

An equipment bought on 1 Jan 2003 RM40,000, depreciated 10% straight line method was SOLD at RM20,000 on 31 Dec 2008. AD is RM 24,000.

Journal entry :

31/12/08 Dr Cash RM20,000 Accu. Depre RM 24,000

Cr Equipment RM 40,000 P&L ( gain from

disposal)RM4,000

Depreciation Convention

Refer your text book Eg 1.9 pg 15

Example 1.12 pg 22 :

Mermaid Ltd bought a TRAILER on 30/4/2006 RM 130,000 in cash. The trailer than was exchanged with a LORRY valued at RM 88,000On 1/7/2008. The exchanged value is RM 74,500 and the remainingbalance paid by cheque. The company policy is to depreciate vehicle with STRIGHT LINE METHOD AT 18% PER YEAR.The financial year of the company is at 31 Dec every year.

Calculate the depreciation and prepare ledger entries at at 31 Dec 2008 for the following situation :

a. Term Basisb. Monthly Basisc. FDP, NDDd. NDP, FDD

TERM BASIS & MONTHLY BASIS

FY

TRAILER   LORRY   DEPRE.30/4/2006 RM130,000

  1/7/2008 RM88,000

        

           

200618% X 130,000 X 8/12 15,600     15,600

           

2007 18% X 130,000 23,400     23,400           

200818% X 130,000 X 6/12 11,700

18% X 88,000 X 

6/12 7920 19,620

  ACCU.DEPRE 50,700                 

VEHICLE A/C2008     2008    1-Jan Bal b/f 1300001-Jul Disposal 1300001-Jul Disposal (lorry) 7450031-Dec Bal cf 88000  Bank 13500         218000 218000           

ACCUMULATED DEPRECIATION1-Jul Disposal 50,700 1-JanBal bf 39,000

31-DecBal cf 7,920 Depre (current yr) 19,620

               58,620    58,620

DISPOSAL A/C

1-JulVehicle 130000 1-JulVehicle 74500        Accu Depre 50,700

       P&L ( loss from disposal) 4,800

    130000    130000           

c. FDP, NDDd. NDP, FDD

Refer the summary in your text book.

Example 1.12 pg 22 : ( SAME EXAMPLE, DIFFERENT METHOD )

Mermaid Ltd bought a TRAILER 30/4/2006 RM 130,000 in cash. The trailer than was exchanged with a LORRY valued at RM 88,000On 1/7/2008. The exchanged value is RM 74,500 and the remainingBalance paid by cheque. The company policy is to depreciate vehicle with REDUCING BALANCE METHOD AT 18% PER YEAR.The financial year of the company is at 31 Dec every year.

Calculate the depreciation and prepare ledger entries at at 31 Dec 2008 for the following situation :

a. Term Basisb. Monthly Basisc. FDP, NDDd. NDP, FDD

TERM BASIS & MONTHLY BASIS – REDUCING BALANCE METHOD

FY

TRAILER   LORRY   DEPRE.30/4/2006 RM130,000

  1/7/2008 RM88,000

        

           

200618% X 130,000 X 8/12 15,600     15,600

   NBV 114,400       

2007 18% X 114,400 20,592     20,592   NBV 93,808       

200818% X 93,808 X 6/12 8,443

18% X 88,000 X 

6/12 7920 16,363

  ACCU.DEPRE 44,635                 

VEHICLE A/C2008     2008    1-Jan Bal b/f 1300001-Jul Disposal 1300001-Jul Disposal (lorry) 7450031-Dec Bal cf 88000  Bank 13500         218000 218000           

ACCUMULATED DEPRECIATION1-Jul Disposal 44,635 1-JanBal bf 36,192

31-DecBal cf 7,920 Depre (current yr) 16,363

               52,555    52,555

DISPOSAL A/C

1-JulVehicle 130000 1-JulVehicle 74500        Accu Depre 44,635

       P&L ( loss from disposal) 10,865

    130000    130000           

Extract of P&LDepre 16,363Loss from disposal 10,865

Extract of Balance Sheet

Non Current Asset :

          Vehicle 88,000(-) Accu Depre (7,920)

80,080

Example 1.13 pg 26 :

The following is the information on the equipment owned by Company ABC on 31 deC 2007 :

Equipment RM 100,000Accu deprec ( 30,000 )

70,000

On 31 March 2008, an equipment bought on 1April 2006 RM 30,000Is exchanged with a new equipment valued at RM 26,000. TheExchange value is RM 18,000. Depreciation for the equipmentIs 15% per year ( STRAIGHT LINE METHOD ).

Prepare the relevant ledger on 31 Dec 2008 :

SOLUTION :

FY

OLD EQUIPMENT   NEW EQUIP  

BALANCE OF EQUIP DEPRE.

1/4/2006 RM30,000

 31/3/2008 RM26,000

 

RM100k-disposed RM30k  

   RM

70,000  

0615% X 30,000 X 9/12 3,375     3,375

07 15% X 30,000 4,500     4,500

0815% X 30,000 X 3/12 1,125

15% X 26,000 X 

9/12 2,92515% X 70,000 10,500 14,550

  ACCU.DEPRE 9,000      

EQUIPMENT A/C2008     2008    1-Jan Bal b/f 100,00031/3 Disposal 30,00031/3 Disposal  18,00031-Dec Bal cf 96,000  cASH 8,000         126,000 126,000           

ACCUMULATED DEPRECIATION31/3 Disposal 9,000 1-JanBal bf 30,000

31-DecBal cf 35,550 Depre (current yr) 14,550

               44,550    44,550

DISPOSAL A/C

31/3Equipment 30,000 31/3lEquipment 18,000        Accu Depre 9,000

       P&L ( loss from disposal) 3,000

    30,000    30,000           

Example 1.14 pg 28 :

The following is the information on the equipment owned by Company ABC on 31 deC 2007 :

Equipment RM 100,000Accu deprec ( 30,000 )

70,000

On 31 March 2008, an equipment bought on 1April 2006 RM 30,000Is exchanged with a new equipment valued at RM 26,000. TheExchange value is RM 18,000. Depreciation for the equipmentIs 15% per year ( REDUCING BALANCE METHOD ).

Prepare the relevant ledger entries on 31 Dec 2008 :

SOLUTION :

FY

OLD EQUIPMENT  

NEW EQUIP  

BALANCE OF EQUIP DEPRE.

1/4/2006 RM30,000

  31/3/2008

RM26,000

 

RM100k-disposed RM30k  

   RM

70,000  

0615% X 30,000 X 9/12 3,375     3,375NBV 26,625

07 15%X 26,625 3994     3994

NBV 22,631

70000-AD FOR 

DISPOSED ASSET

0815% X 22631 X 3/12 849

15% X 26,000 X 

9/12 2,92515% X 47,369 7105 3774

NBV 21782 NBV 23,075 40,264  ACCU.DEPRE 8218      

Cost 70,000-Accu depre (22,631)NBV 08 47,369

- Depre (08) 15% (7105)40,264

Full Accu depre RM30,000 – accu

depre for disposed aset

RM7369= 22,631

Improve Your understanding …Solve Q1 – Q3