ACCT1001 · Financial Accounting 1
Non-Current Assets
Non-current assets are the long-lived resources a business uses rather than sells, and ACCT1001 follows them through their whole life: acquire, depreciate, dispose. Acquisition under AASB 116 turns on the cost test — the cost of an item of property, plant and equipment includes everything needed to bring it to working condition (purchase price net of GST, freight, installation, testing), while ongoing running costs are expensed; this is the capitalise-vs-expense decision. Depreciation spreads that capitalised cost across the asset's useful life by one of three methods — straight-line, units of production, or reducing (diminishing) balance — and the chapter shows all three on the same asset so you can see how the pattern of expense differs. Disposal is the four-line journal that removes the asset and its accumulated depreciation and recognises any gain or loss. The chapter also introduces the two AASB 116 measurement models (cost vs revaluation), intangible assets under AASB 138, and goodwill under AASB 3 — the residual when one entity acquires another for more than the fair value of its net identifiable assets.
What this chapter covers
- 018.1 Cost of acquisition — what's capitalisable? (AASB 116)
- 028.2 Depreciation: straight-line, units of production, reducing balance
- 038.3 Disposal — the four-line journal
- 048.4 The two measurement models: cost vs revaluation (AASB 116)
- 058.5 Intangible assets in brief (AASB 138)
- 068.6 / 8.7 Goodwill (AASB 3) & the asset life cycle in five moves
Worked example: straight-line depreciation and the cost test
- +2Apply the cost test: capitalise everything needed to get the machine working — $40,000 + $1,500 freight + $2,500 installation = $44,000.
- +1Exclude running costs: the $600 insurance is an ongoing operating cost, not part of acquisition cost — expense it.
- +1Straight-line formula: (cost − residual) ÷ useful life = ($44,000 − $4,000) ÷ 5 = $8,000 per year.
- +1Journalise year 1: Dr Depreciation Expense $8,000 / Cr Accumulated Depreciation — Machine $8,000; carrying amount becomes $44,000 − $8,000 = $36,000.
Key terms
- Capitalise vs expense
- The AASB 116 cost-test decision. Costs needed to bring an asset to working condition (purchase price net of GST, freight, installation, testing) are capitalised into the asset's cost; ongoing running costs (insurance, fuel, routine repairs) are expensed as incurred. Getting this split wrong misstates both the asset and the profit.
- Depreciation
- The systematic allocation of a depreciable asset's cost (less residual value) over its useful life, matching the cost to the periods that benefit. It is recorded as Dr Depreciation Expense / Cr Accumulated Depreciation, a contra-asset; it is an allocation process, not a valuation of the asset.
- Reducing (diminishing) balance
- A depreciation method that applies a fixed percentage rate to the asset's reducing carrying amount each year, so the expense is high early and falls over time. It contrasts with straight-line (an equal charge each year) and units of production (charge based on usage).
- Carrying amount
- An asset's cost less its accumulated depreciation (and any impairment) — the net figure at which it is reported on the balance sheet. On disposal, the proceeds are compared with the carrying amount to determine the gain or loss.
- Goodwill
- Under AASB 3, the excess of what one entity pays to acquire another over the fair value of the acquiree's net identifiable assets. It represents unidentifiable value such as reputation and customer base; it is recognised only on acquisition and is tested for impairment rather than amortised.
Non-Current Assets FAQ
Which costs go into the asset and which are expensed?
Apply the AASB 116 cost test: capitalise every cost necessary to bring the asset to the location and condition needed for it to operate — the purchase price (net of recoverable GST), delivery and freight, installation, and testing. Costs of running and maintaining the asset once it is working — insurance, fuel, routine repairs, training — are expensed as incurred. The test is whether the cost was needed to get the asset ready, not just associated with buying it.
Which depreciation method should I use?
It depends on how the asset delivers its benefits. Straight-line gives an equal charge each year and suits assets used evenly over time. Units of production charges by actual usage and suits assets whose wear depends on output (a machine measured in units, a vehicle in kilometres). Reducing balance front-loads the expense and suits assets that lose most of their value early. The exam often shows all three on the same asset so you can compare the expense pattern; pick the method the question specifies and apply its formula exactly.
How do I record the disposal of an asset?
With the four-line journal: remove the asset at cost, remove its accumulated depreciation, record the proceeds (cash or receivable), and recognise the balancing gain or loss. The gain or loss is the difference between the proceeds and the carrying amount (cost less accumulated depreciation): proceeds above carrying amount is a gain, below is a loss. Forgetting to bring the depreciation up to the disposal date first is a common error.
What is goodwill and when is it recognised?
Goodwill is the premium paid to acquire a business over and above the fair value of its net identifiable assets — the value of things you cannot separately identify, such as reputation, location and customer relationships. Under AASB 3 it is recognised only when one entity acquires another (purchased goodwill); internally generated goodwill is never recognised. Once on the books, goodwill is not amortised but is tested for impairment.
Exam move
Split this topic into the three life stages and drill each. For acquisition, run the AASB 116 cost test on a messy list of costs and decide each one capitalise-or-expense — this is a reliable mark. For depreciation, know all three formulas cold (straight-line, units of production, reducing balance) and be able to produce a schedule and the carrying amount at any point; the exam likes to show the same asset under different methods. For disposal, practise the four-line journal and always update depreciation to the disposal date before computing the gain or loss. Treat the measurement models, intangibles (AASB 138) and goodwill (AASB 3) as shorter conceptual add-ons: know the goodwill formula (purchase price minus fair value of net identifiable assets) and that it is impairment-tested, not amortised.
