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Long Lived Assets - Part 1 http://www.youtube.com/watch?feature=player_embedded&v=yRuHOFPMbEA
Definition Long lived Assets are those assets which are purchased or produced with the intention to use them for more than one accounting period. In other words These are assets having a useful life of more than a year. They are also known as noncurrent assets, fixed assets and Property, plant and Equipment by IAS. These assets are not purchased for resale, they are used by the entities for long period that is why they are called long lived assets. Why is it important?
The Noncurrent assets are essential for every business, for example A manufacturing business needs a piece of land for manufacturing goods, further it needs building and machinery to produce those goods, then the business needs motor vehicles to supply those manufactured goods to the market, and so on. Business cannot survive without the noncurrent assets, as noncurrent assets are very important that is why its reporting also plays a key role and investors want to have a knowledge about the noncurrent asset position of a company. Lecture Notes Long lived Assets are distinguished from current assets by the following: They:
* are long term in nature
* are not normally acquired for resale
* are could be tangible or intangible
* are not easily and quickly converted into cash without a significant loss in value
Capitalisation of Long Lived Assets: To understand what is the procedure of capitalising long lived assets in the companies financial statements, the following terms should be grasp Capital expenditures are expenditures to acquire a long lived assets or which are incurred toad value in these assets Revenue Expenditures are expenses on daily basis to run the business or to maintain the long lived assets
Acquisition of a noncurrent asset A noncurrent asset register is maintained in order to control noncurrent assets. The double entry for acquiring noncurrent asset:
1 Dr Cr
Noncurrent asset Bank/Cash/Payables
A separate account should be kept for each category of noncurrent asset, e.g. motors, fixtures and land. Initial measurement Long lived assets should initially be measured at its cost:
* include all costs involved in bringing the asset into working condition
* include in this initial cost capital costs such as the cost of site preparation, delivery costs, installation costs, borrowing costs (in accordance with IAS 23 later).
* revenue costs should be written off as incurred. The cost of a Long lived assets is any amount incurred to acquire the asset and bring it into working condition Includes Capital expenditure such as :
* purchase price repairs
* delivery costs renewals
* legal fees repainting
* subsequent expenditure which enhances the asset Excludes Revenue expenditure such as:
* repainting Subsequent expenditure (Advanced optional) Subsequent expenditure on Long lived assets should only be capitalised if it results in the total economic benefits expected from the asset to increase above those expected on original recognition, e.g. the cost of an extension to a building should be capitalised (capital expenditure) as economic benefits will increase with greater space. All other subsequent expenditure should be recognised in the income statement, because it merely maintains the economic benefits originally expected e.g. the cost of general repairs should be written off immediately (revenue expenditure). Example: Mr. QB 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 300 Honda cars 116,000
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