CAT / FIA FFA Syllabus D. Recording Transactions And Events - Acquisition and disposal of non-current assets - Notes ^{5 / 9}

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

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

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.

A profit on disposal is shown in the statement of profit or loss as sundry income, a loss as an expense in the statement of profit or loss.