Acquisition and disposal of non-current assets

NotesQuizObjective Test

Acquisition of Non Current Assets

When a non-current asset is acquired, the double-entry is:

Dr Non-Current Asset
Cr Cash/Payables

Tangible non-current assets should initially be recorded at cost.

The cost of an asset (Capital expenditure on the asset) includes

  1. Purchase price – after deducting trade discounts and rebates and adding duties and non-refundable taxes

  2. Cost directly attributable to bring the asset to its location and to make it available for its intended use.

    These include:

    a. Initial delivery and handling costs
    b. Installation and assembly costs
    c. Costs of testing whether the asset is working properly
    d. Professional fees

    The following costs may not be included:

    a) The cost of maintenance contracts
    b) Administration and general overhead costs
    c)     Staff training costs

  3. Dismantling cost – cost of removing old asset from its place in order to put in the new one

Disposal of non-current assets

When a non-current asset is sold, there is likely to be a profit or loss on disposal.  This is the difference between the net sale price of the asset and its net book value at the time of disposal.

If:

Sales proceeds > NBV → profit on disposal
Sales proceeds < NBV → loss on disposal

This profit/loss from the sale of a non-current asset will be shown on the statement of cash flows and the statement of profit or loss and other comprehensive income.

How to calculate NBV/CV?
Purchase price - Depreciation until date of sale

Accounting Treatment

  1. Remove the cost of the asset:

    Dr Disposal account
    Cr Non-current asset

  2. Remove the accumulated depreciation charged to date:

    Dr Accumulated depreciation
    Cr Disposal account

  3. Account for the sales proceeds:

    Dr Cash
    Cr Disposal account

  4. Balance off disposal account to find the profit or loss on disposal.

NotesQuizObjective Test