ACC1100 · Introduction To Financial Accounting
Non-current Assets
Property, plant and equipment (AASB 116) are tangible assets used to earn revenue over more than one period, and their life-cycle has four examinable stages that the mock eExam stitches into one ~10-mark scenario: capitalise at cost, depreciate across the useful life, test for impairment or revalue, and finally dispose. Cost capitalises the purchase price plus all directly attributable set-up costs (delivery, installation, testing) while recurring costs are expensed. Depreciation spreads the depreciable amount (cost − residual) by one of three methods — straight-line, reducing-balance or units-of-production — through the same entry every time (Dr Depreciation Expense / Cr Accumulated Depreciation). On disposal you compare proceeds with carrying amount for a gain or loss; impairment (AASB 136) writes the carrying amount down through profit, while an upward revaluation goes to a revaluation surplus in equity, not profit.
What this chapter covers
- 018.1 What capitalises into cost (capitalise vs expense)
- 02Depreciation: straight-line, reducing-balance, units-of-production
- 03The carrying amount and the always-same depreciation entry
- 048.3 Disposal: proceeds vs carrying amount → gain/loss
- 058.4 Impairment (AASB 136) — through profit
- 068.5 Revaluation (AASB 116) — surplus to equity via OCI
Worked example: depreciate, then dispose of a van
- +1(a) Straight-line depreciation = (cost − residual) ÷ life = (63,000 − 3,000) ÷ 5 = $12,000/yr. (The $63,000 capitalises set-up costs; recurring insurance would be expensed.)
- +1(b) Accumulated depreciation after 3 years = 3 × 12,000 = $36,000.
- +1Carrying amount = cost 63,000 − accumulated depreciation 36,000 = $27,000.
- +1(c) Proceeds $24,000 < carrying amount $27,000 → a loss of $3,000 (compare to carrying amount, never to cost).
- +2Disposal entry: Dr Cash 24,000; Dr Accumulated Depreciation 36,000; Dr Loss on Disposal 3,000; Cr Motor Vehicle 63,000.
Key terms
- Acquisition cost
- Purchase price (after trade discounts) plus all directly attributable costs of bringing the asset to working condition — delivery, installation, testing, site preparation. Recurring costs (insurance, registration, routine servicing, training) are expensed, never capitalised.
- Depreciation
- The systematic allocation of an asset’s depreciable amount (cost − residual) over its useful life — an allocation, not a valuation. Land is not depreciated. The entry is always Dr Depreciation Expense / Cr Accumulated Depreciation, whatever the method.
- Carrying amount
- Cost less accumulated depreciation (and less any accumulated impairment). It is the figure compared with proceeds on disposal and with the recoverable amount on impairment — never the original cost, never cost minus one year’s charge.
- Impairment (AASB 136)
- Under the cost model, a write-down when carrying amount exceeds the recoverable amount (the higher of fair value less costs of disposal and value in use). The loss is recognised through profit, and future depreciation re-bases on the new carrying amount.
- Revaluation (AASB 116)
- Under the revaluation model, carrying the asset at fair value. An upward increment credits a revaluation surplus in equity through OCI (the gain is unrealised, not profit); a decrement is a revaluation expense through profit.
Non-current Assets FAQ
Which costs get capitalised into the asset, and which are expensed?
Capitalise the purchase price and every directly attributable cost of getting the asset ready to use — delivery, installation, testing, site preparation, signwriting. Expense recurring running costs such as insurance, registration, routine servicing and staff training. Exam scenarios deliberately bury a recurring cost among the set-up costs; over-capitalising overstates the asset and understates this year’s expense.
Does the reducing-balance method apply the rate to cost?
No — reducing-balance applies its rate to the carrying amount each year, not the cost, so the expense front-loads. All three methods depreciate the same total (cost − residual) over the life; they differ only in timing. Pro-rate for part-years, and remember carrying amount = cost − accumulated depreciation, never cost minus a single year’s charge.
How do I find the gain or loss on disposal?
Compare proceeds with the carrying amount (cost − accumulated depreciation), never with the original cost. Proceeds above carrying amount is a gain; below is a loss. The entry derecognises the asset at full cost AND clears its accumulated depreciation, with the balancing figure being the gain or loss — a built-in self-check. A gain on disposal is not classified as revenue.
What is the difference between impairment and revaluation?
Impairment (AASB 136, cost model) writes the carrying amount down to the recoverable amount through profit. An upward revaluation (AASB 116, revaluation model) raises the asset to fair value and credits a revaluation surplus in equity via OCI — never profit, because the gain is unrealised. Routing an increment through profit is the headline topic error.
Exam move
This is the unit’s flagship multi-part scenario, so practise stitching the stages: capitalise set-up costs (expense recurring ones), depreciate to a carrying amount, then dispose or impair or revalue. Be fluent in all three depreciation methods and watch the reducing-balance base (carrying amount, not cost). On disposal, always compare proceeds to carrying amount and let the balancing figure be your gain/loss check. Keep the two post-acquisition routes straight: impairment hits profit, an upward revaluation hits the surplus in equity (OCI). Carrying amount = cost − accumulated depreciation − accumulated impairment.
