ACC1100 Chap.6 Non-Current Assets
Non-Current Assets
Non-current assets provide economic benefits beyond the current period, and their use must be reflected through depreciation when those benefits are consumed. The current materials develop straight-line depreciation by subtracting residual value from cost and dividing the depreciable amount by useful life.
This chapter records depreciation expense against accumulated depreciation, calculates carrying amount, applies part-year timing and traces an omitted adjustment through expense, profit, equity and assets. It also distinguishes allocation from cash movement and market valuation.
Cost remains visible while accumulated depreciation collects the allocations recorded since acquisition, allowing the balance sheet to present their difference. Full-year and part-year examples show why the available-use period matters and why the balance-day entry contains no cash account. Every worked amount can be checked through the closing carrying balance.
What this chapter covers
- 01
Current and non-current classification
- 02
Limited economic benefits
- 03
Depreciable amount
- 04
Residual value
- 05
Useful life
- 06
Straight-line depreciation
- 07
Part-year allocation
- 08
Depreciation expense entry
- 09
Accumulated depreciation
- 10
Carrying amount
- 11
Omission effects
Worked example · free
Calculate part-year straight-line depreciation
- +2Depreciable amount is $47,000 - $5,000 = $42,000.
- +2Annual straight-line depreciation is $42,000 / 7 = $6,000.
- +2Five-month depreciation is $6,000 x 5/12 = $2,500.
- +2Record Dr Depreciation Expense $2,500 / Cr Accumulated Depreciation $2,500; first-period carrying amount is $44,500.
Key terms
- Non-current asset
- An asset classified beyond the current twelve-month horizon in the chart of accounts.
- Depreciable amount
- Asset cost or substituted amount less estimated residual value.
- Residual value
- The estimated disposal amount at the end of an asset's useful life.
- Useful life
- The span of time during which the entity expects the asset to remain available for operations.
- Straight-line method
- A method that allocates an equal depreciable amount to each full period of useful life.
- Contra asset
- An account with the opposite balance direction that reduces the related asset in presentation.
Non-Current Assets FAQ
Is depreciation a cash payment each year?
No. The acquisition may involve cash, but the later balance-day depreciation entry debits expense and credits accumulated depreciation. It recognises consumption of economic benefits without moving cash at that date. This is why omission changes expense, profit, equity and asset carrying amount while leaving the current cash balance unchanged.
How is carrying amount calculated?
Carrying amount is the asset's cost less its related accumulated depreciation. Keeping those accounts separate preserves the original cost and the total allocation recorded since acquisition. After a first-year $8,000 depreciation charge on a $52,000 asset, accumulated depreciation is $8,000 and carrying amount is $44,000.
Why does residual value reduce depreciation?
Residual value is the estimated amount expected from disposal at the end of useful life. Straight-line depreciation allocates only the depreciable amount, defined as cost less residual value. Subtracting it before division prevents the accounting allocation from treating the expected residual portion as consumed during use.
What if an asset is held for only part of the year?
Calculate the full-year straight-line amount from cost, residual value and useful life, then multiply by the fraction of the reporting period for which the asset is available. The current slides specifically warn that the period may be less than a full year, so the time fraction must be shown.
What happens if depreciation is omitted?
Expense is understated, so profit and closing equity are overstated. Accumulated depreciation is also understated, leaving the asset carrying amount overstated. The omission has no balance-day cash effect because the correcting entry would contain Depreciation Expense and Accumulated Depreciation rather than Cash. State the amount beside every direction when figures are given.
Exam move
Use a five-line depreciation template: cost, less residual value, depreciable amount, divided by useful life, multiplied by the time fraction. Beneath it, write the journal entry and update accumulated depreciation and carrying amount. Finish with an omission table covering expense, profit, equity, assets and cash. Practise full-year and part-year examples with fresh numbers.
Keep straight line separate from other methods mentioned for later coverage, because the current detailed material develops only straight line. Explain in words that depreciation allocates consumption rather than estimating market price. Check the answer from two directions: accumulate the expense to date and subtract it from cost, then recompute the remaining depreciable amount over the remaining life.
If the assumptions are unchanged, the two views should be consistent.
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