ACCTG102 · Accounting Concepts
Non-Current Assets: Depreciation, Revaluation & Disposal
Week 8 of ACCTG 102 Accounting Concepts at the University of Auckland follows a non-current asset through its whole life: what is capitalised into cost at acquisition, how that cost is allocated as depreciation (straight-line, diminishing-value, units-of-production), and how impairments, revaluations and disposals are journalised. It sits after the mid-semester test (Chapters 1–5), so it is examined on the comprehensive final — where the practice paper gave non-current assets three whole questions plus two of its five multiple-choice questions — and drilled by Assignment 2 on WileyPlus.
What this chapter covers
- 01Cost at acquisition — capitalise everything necessary to acquire the asset and make it ready for use; expense registration, annual insurance and repairs
- 02Land vs land improvements: land is never depreciated, but car parks, fencing and lighting are a separate depreciable class
- 03Straight-line depreciation: (cost − residual value) ÷ useful life, with carrying amount = cost − accumulated depreciation
- 04Diminishing-value (diminishing-balance): rate × carrying amount at the start of the year — never on cost after Year 1
- 05Units-of-production: per-unit rate = depreciable amount ÷ total estimated units, then rate × units used this period
- 06Mid-year catch-up depreciation (annual charge × months/12) before any disposal or revaluation
- 07Impairment: loss = carrying amount − recoverable amount, the higher of fair value less costs to sell and value in use
- 08Revaluation: transfer accumulated depreciation into the asset first; increases go to revaluation surplus (equity), decreases to expense unless reversing a prior surplus
- 09Disposals: gain or loss = proceeds − carrying amount; the entry removes both cost and accumulated depreciation
- 10Intangibles and depletion: amortise finite lives (patents: shorter of legal and useful life); goodwill and indefinite-life brands are impairment-tested, never amortised
Mid-year disposal with catch-up depreciation
- +1Annual depreciation. (18,000 − 2,000) ÷ 5 = $3,200 per year. Catch-up to the sale date: 3,200 × 9/12 = $2,400 — Dr Depreciation expense 2,400 / Cr Accumulated depreciation — trailer 2,400.
- +1Total accumulated depreciation at sale. Two full years (2 × 3,200 = 6,400) plus the catch-up 2,400 = $8,800.
- +1Carrying amount. 18,000 − 8,800 = $9,200.
- +1Gain or loss. Proceeds 9,500 − carrying amount 9,200 = gain of $300 (proceeds above carrying amount, so a gain, credited to income).
- +2Disposal entry. Dr Cash at bank 9,500; Dr Accumulated depreciation — trailer 8,800; Cr Trailer 18,000; Cr Gain on disposal 300. Debits 18,300 = credits 18,300 — both the cost and its accumulated depreciation leave the books.
Key terms
- Carrying amount
- Cost minus accumulated depreciation (and impairment). It is an allocation result, not market value — a fully depreciated asset can still be productive.
- Depreciable amount
- Cost minus residual value — the total that every depreciation method allocates over the useful life; the methods differ only in the yearly pattern.
- Diminishing-value (diminishing-balance) method
- Depreciation = rate × carrying amount at the start of the year, so the expense is front-loaded. The rate comes from 1 − (residual ÷ cost)^(1/n), though exams usually give it to you.
- Residual value
- The estimated amount recoverable when the asset is disposed of at the end of its useful life. Both residual value and useful life are estimates; changing them is a change in accounting estimate applied prospectively.
- Impairment loss
- Carrying amount minus recoverable amount, where recoverable amount is the higher of fair value less costs to sell and value in use. Recorded as Dr Impairment loss / Cr Accumulated impairment loss.
- Revaluation surplus
- The equity account credited when PPE is revalued upward. A later downward revaluation reverses the surplus on that asset first; only the excess becomes revaluation expense.
- Goodwill
- The unidentifiable intangible: the excess of the purchase price of a business over the fair value of its identifiable net assets. Recognised only when purchased, never internally generated, and impairment-tested annually rather than amortised.
- Amortisation
- Depreciation for finite-life intangibles, straight-line by default — a patent is amortised over the shorter of its legal life (20 years) and its useful life.
Non-Current Assets: Depreciation, Revaluation & Disposal FAQ
Is this chapter in the ACCTG 102 mid-semester test or the final exam?
The mid-semester test (20%, on Inspera, open book) covers Chapters 1–5 only, and non-current assets are Chapter 8 (Week 8) — so this material is examined on the comprehensive final exam, which covers Chapters 1–5 and 7–10 plus Xero. On the practice final it was the heaviest single topic: three whole questions plus two multiple-choice questions. Assignment 2 on WileyPlus also drills the depreciation-method comparisons.
Can AI help me with non-current assets in ACCTG 102?
Yes — used the right way. Sia explains disposals, revaluations and depreciation methods step by step: you can paste your own attempt at a catch-up-depreciation problem and have each line checked against the logic (annual charge × months/12, carrying amount, proceeds minus carrying amount), or ask why a revaluation decrease hits expense while an increase goes to equity. It is a study tool for understanding the method — it will not do graded work for you, and no tool can promise marks; note the test rules prohibit AI use during the assessment itself.
What is the most common mistake with PPE disposals?
Forgetting catch-up depreciation. If the asset is sold part-way through the year, you must first record depreciation for the months held; otherwise the carrying amount is overstated and the gain/loss is wrong in amount and often in direction. The second classic error is applying a diminishing-value rate to cost after Year 1 — the base is always the carrying amount at the start of the year, and any machine-hours or kilometre data given alongside is a decoy for that method.
Exam move
Build this chapter around routines, not memorised answers. First lock the three depreciation formulas cold — no formula sheet was provided at the mid-semester test and the final’s provision is not stated — and practise the diminishing-value discipline of always starting from carrying amount. Then drill the disposal routine until it is mechanical: catch-up depreciation (annual charge × months/12), carrying amount, proceeds minus carrying amount, one balanced entry that removes both cost and accumulated depreciation. For revaluations, rehearse the three-step ritual (depreciate to date, transfer accumulated depreciation into the asset, then record the surplus or expense). On the practice final's pacing of roughly 1.6 minutes per mark, a 7-mark disposal question deserves about 11 minutes — and the marks come one per journal line or component, with labelled workings earning credit even when arithmetic slips, so always show the chain. Finish by preparing one-line answers to the standard written questions: depreciation is allocation not valuation, and internally generated brands are never recognised.
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