This document discusses various topics related to non-current assets, including: 1. Classification of non-current assets into tangible fixed assets like property and equipment and intangible fixed assets like goodwill and patents. 2. Determination of the cost of non-current assets, which according to the historical cost concept is the amount paid to acquire and prepare the asset for use. 3. Methods of calculating depreciation expense over the useful life of an asset, such as straight-line and reducing balance methods. 4. Accounting treatments for disposal, sale, or trade-in of non-current assets and the recognition of gains or losses. 5. Reporting of depreciation expense and accumulated de

1. TOPIC 6 :
NON-CURRENT ASSET

2. 1. CLASSIFICATION OF NON-
CURRENT ASSET
2. DETERMINATION OF COST
3. DEPRECIATION
4. DISPOSAL OF ASSET
5. TRADE IN ASSET
6. REPORTING THE DEPRECIATION
AND ACCUMULATED
DEPRECATION
7. INTANGIBLE ASSET

3. CLASSIFICATION OF FIXED ASSET
• 1. Tangible Fixed Asset : FRS116
Eg. Property, Land and Equipment
- tangibles resources that are used in the
operation of a business and not for sale
- long lived asset which exceeds more than
one accounting period
• 2. Intangible Fixed Asset : FRS116
Eg. Impairment of Assets: Goodwill, Patent and Copyright
- intangibles resources that cannot be hold, touch but
the asset could give a future benefit

4. Determination of Cost of an Asset :
- according to historical cost concept:
Asset is recorded at cost price not
market price
- Cost : all expenditures necessary to
acquire the asset and make it ready
for its intended use.
Determination of Cost

5. Determine Cost
Types of expenditures:
Capital expenditure Revenue expenditure
To increase the operating
efficiency, productive
capacity or useful life of
the asset
To maintain the operating
efficiency and productive
life of the asset
Incurred infrequently and
material in amount
Incurred frequently and
small amount
Eg. Addition and
improvement
Eg. Ordinary repair

6. Determination of Cost
The cost may include:
- Purchase price of the fixed asset
- Transportation cost to get the fixed asset
- Insurance on the purchase
- Taxes on the purchase
- Installation costs

7. Determination of Cost
• How to determine the cost of Plant
and Machinery ?
RM
Cash price 50,000
Sales taxes 3,000
Insurance 500
Installation 1,000
Cost of Plant & Machinery 54,500

8. Depreciation
Depreciation of an Asset :
Definition - is a process of allocation
the depreciable amount of an asset
over its estimated useful life.
why we need to generate provision
for depreciation? To comply:
- Matching Concept
- Prudence concept

9.  Factor effecting useful life of an asset
• Physical
- due to the wear and tear and exposure to
the weather condition
• Technology
- the technology advancement makes the
asset out of date (obsoletes)
• Economy
- the usage of the asset is no longer cost
effective
• Legislation
- the useful life is limited to the year of lease.

10. Straight Line
Sum of Years Digit
Reducing Balance
Unit of Activity
Method of Calculating
Depreciation

11. Straight Line Method
Depreciation = Cost - Salvage Value
Useful Life ( years)
Example :
Van costs RM45,000, has a useful life of 5 years
and salvage value of RM5,000
Depreciation = 45,000 – 5,000
5
= RM8,000 per year
Journal Entry:
Dt. Depreciation Expense 8,000
Cr. Accumulated Depreciation 8,000

12. The amount of depreciation is reduced
every years
Depreciation = 1 – n r/c
n = estimated useful life
r = salvage value
c = cost of asset
Example :
Van is bought at cost RM33,000, with salvage value
RM3,000 and useful life of 4 years
Depreciation = 1 – 4 3,000/33,000
= 45%
Reducing Balance Method

13. Reducing Balance Method
Year Beginning
Book Value
Rate Annual
Depreciation
Expenses
Accumulated
Depreciation
Book
Value
1 33,000 45% 14,850 14,850 18,150
2 18,150 45% 8,168 23,018 9,983
3 9,983 45% 4,492 27,510 5,490
4 5,490 45% 2,471 29,980 3,020

14. Sum of Years Digit Method
Calculate an asset’s cost with sum of years
digit ratio
Example :
Machine cost RM43,000, estimated useful life is 4
years and salvage value RM3,000
Sum of years digit = 1 + 2 + 3 + 4
= 10
If the asset has long useful life, use formula:
S = n (n + 1)
2

15. Sum of Years Digit Method
Years Depreciable
Amount
Ratio Depreciation
1 43,000 - 3,000 4/10 16,000
2 43,000 - 3,000 3/10 12,000
3 43,000 - 3,000 2/10 8,000
4 43,000 - 3,000 1/10 4,000

16. Unit of Activity Method
Depreciable = Depreciable Cost
(Per unit) Total units of activity
Annual = Depre. Cost X Units of Activity during
Depreciation Per unit the year
Example :
Bought delivery truck cost RM13,000, expected
salvage value is RM1,000 and estimated useful life of
5 years. Estimated useful life in miles 100,000 miles.
Depreciation Cost per unit = (13,000 – 1,000)/100000
= RM0.12

17. Unit of Activity Method
** (RM13,000 – RM1,800)
Year Unit of
Activity
Depreciatio
n Rate
Annual
Depreciatio
n Expenses
Accumulate
d
Depreciation
Book
Value
1 15,000 0.12 1,800 1,800 11,200**
2 30,000 0.12 3,600 5,400 7,600
3 20,000 0.12 2,400 7,800 5,200
4 25,000 0.12 3,000 10,800 2,200
5 10,000 0.12 1,200 12,000 1,000

18. DISPOSAL OF ASSET
 Asset can be disposed in three ways:
i. Retirement
ii. Sale
iii. Exchange
 At the time of disposal:
a) Determine the book value of the asset
b) Depreciation for the fraction of the
year to the date of disposal

19. Retirement
Herbert Enterprise retires its
computer printers, which cost
RM18,000. The accumulated
depreciation on this printer is
RM14,000

20. Journal Entry:
Dt Cr.
Acc. Depreciation 14,000
Loss in disposal 4,000
Printing Equipment 18,000
(to record retirement of an
equipment at loss)

21. Sale of Asset
The book value of the asset is
compared with the proceeds received
from the sale
Sale Proceed > book value = GAIN
Sale Proceed < book value = LOSS

22. Example: Gain in Disposal
Machine bought at cost RM60,000 is disposed after 3 years at
price RM20,000. Using a straight-line method of depreciation.
The expected useful life is 4 years and no scrap value.
Workings:
Cost 60,000
Acc. Depreciation 45,000 (60,000/4 = 15,000 x 3)
Net book value 15,000
Cash 20,000
Gain on disposal 5,000
Journal Entry:
Dr Cr
Accumulated Depreciation 45,000
Cash 20,000
Machine 60,000
Gain in disposal 5,000

23. Using the previous example: Loss in Disposal
If the machine could be sold at a price of RM10,000 cash.
Workings:
Cost 60,000
Accumulated Depre. 45,000 (60,000/4 = 15,000 x 3)
Net book value 15,000
Cash 10,000
Loss on disposal 5,000
Journal Entry
Dr Cr
Accumulated Depreciation 45,000
Cash 10,000
Loss in disposal 5,000
Machine 60,000
(to record sale of machine at loss)

24. TRADE IN ASSET
Assets are being exchange either from
similar or
dissimilar assets.
• It is important to determine:
i. The cost of asset acquired
ii. The gain and loss on the asset given up
i. Cost of the exchange Asset
“ cash equivalent price paid”
ii. Gain or loss on the asset
“ the different between the fair market value
and the book value of the asset given up”

25. Example: Loss in Trade In
Rowland exchanges old office equipment for a new
office equipment. The book value of old equipment is
RM26,000 (RM70,000 less accumulated depreciation
RM44,000) Its fair market value is RM10,000 and cash
of RM81,000 is paid.
Workings:
Fair Market Value (old)
Cash
RM10,000
81,000
Cost of New Equipment RM91,000
Book Value (old)
Fair Market Value (old)
RM26,000
10,000
Loss on Disposal RM16,000

26. Journal Entry:
Dt Cr
Office Equipment (new) 91,000
Acc. Depreciation 44,000
Loss in disposal 16,000
Office Equipment (old) 70,000
Cash 81,000
(to record exchange of old
office equipment)

27. Example: Gain in Trade In
Rowland exchanges old office equipment for a new
office equipments. The book value of old equipment is
RM12,000 (RM40,000 less accumulated depreciation
RM28,000) Its fair market value is RM19,000 and cash
of RM3,000 is paid.
Workings:
Fair Market Value (old)
Cash
RM19,000
3,000
Cost of New Equipment RM22,000
Book Value (old)
Fair Market Value (old)
RM12,000
19,000
Gain on Disposal RM7,000

28. Journal Entry
Dt Cr
Office Equipment (new) 22,000
Acc. Depreciation 28,000
Office Equipment (old) 40,000
Cash 3,000
Gain on disposal 7,000
(to record exchange of old
office equipment)

29. Reporting the Depreciation and
Accumulated Depreciation
Income Statement
Depreciation Expenses 8,000
Balance Sheet
Motor Van 50,000
(-) Acc. Depreciation (8,000)
42,000

30. INTANGIBLE ASSET
• Definition:
– Right, privileges and competitive
advantage that result from the ownership
of long-lived assets that do not possess
physical substance
• Examples include:
– Patents (e.g. Polaroid)
– Franchises (e.g. McDonald’s)
– Trademarks (e.g. swoosh of Nike)

31. Intangible Assets
• Intangible assets can be separated
into:
a. Identifiable
– Must be capable of being separated or
divided from an entity (whether sold,
licensed, rented or exchanged) or must
arise from contractual or other legal rights.
b. Unidentifiable
– Cannot be separated from the entity itself.
– Collectively referred to as goodwill.

32. Intangible Asset : Goodwill
• Types:
There are two types of goodwill:-
i. Inherent goodwill
- no need to record in the company books
ii Purchased goodwill
- goodwill arises from a business which bought
another business.
- this goodwill needs to be amortized at a
maximum of 25 years.

33. Accounting Treatment:
1. Recognized as asset
- need to amortized
Journal Entry:
Dt Cr
Goodwill XXX
Cash XXX
(To record the goodwill amount)
Goodwill Expenses XX
Goodwill XX
(to record the amortized figure)

34. Accounting Treatment:
2. Recognized as an expense
- written off the whole amount in
the income statement
Journal Entry:
Dt Cr
Goodwill Expenses XXX
Cash XXX
(To record the goodwill
amount)

35. Accounting for Intangible Assets
(cont’d)
Amortisation
• This is the term used to describe the
allocation of the cost of an intangible
asset to expense.
• Intangible assets are assumed to
have a limited life and are amortised.
• Patents are amortised over legal or
useful life, whichever is shorter.

36. Accounting for Intangible Assets
(cont’d)
Example:
• Patent costs $60 000 and has an
estimated useful life of 8 years.
• Annual amortisation expense
$60 000 ÷ 8 = $7500
• Recording annual amortisation
Dec 31 Amortisation Expense 7 500
Accumulated Amortisation - Patents 7
500
(To record patent amortisation)

37. Types of Intangible Assets
1. Patents
– Exclusive right granted by IP Australia
enabling recipient to manufacture, sell or
otherwise control an invention.
2. Research and development costs
– Expenditures that may lead to patents,
copyrights, new processes and new
products.
3. Copyright
– Gives the owner exclusive right to
reproduce and sell an artistic or published
work.

38. Types of Intangible Assets
4. Trademarks and brand names
– Words, phrases, jingles or symbols that
distinguish or identify a particular
business or product.
5. Franchises and licences
– A contractual arrangement under the
franchisee is granted certain rights.
6. Goodwill
– Represents all favourable attributes that
relate to an entity and is defined as future
benefits from unidentifiable assets.