Non-Current Assets: Depreciation, Revaluation and Disposal
What the domain tests
This domain tests initial measurement of non-current assets, depreciation, revaluation, impairment indicators and disposal. You must separate profit or loss effects from other comprehensive income and from equity transfers.
Core rules
- Initial cost includes purchase price, import duties, non-refundable taxes, directly attributable installation and testing costs, and estimated dismantling costs.
- Depreciation is the systematic allocation of depreciable amount (cost or revalued amount less residual value) over useful life. Methods include straight-line, reducing balance and units of production.
- Revaluation increase: credit other comprehensive income and accumulate in revaluation surplus. Decrease: expense in profit or loss, unless it reverses a previous surplus on the same asset. A later increase reverses a previous expense before crediting surplus.
- Depreciation after revaluation is based on the revalued carrying amount and remaining useful life. On disposal, gain or loss = proceeds - carrying amount. Any remaining revaluation surplus may be transferred directly to retained earnings; it is not recycled through profit or loss.
Worked example
Machine cost 120,000, residual 20,000, life 5 years, straight-line. Annual depreciation = (120,000 - 20,000)/5 = 20,000. After 3 years carrying amount = 60,000. It is revalued to 75,000: surplus 15,000 to OCI. Remaining life 2 years, residual 15,000. New depreciation = (75,000 - 15,000)/2 = 30,000 per year.
Traps
Do not depreciate land normally. Do not charge the whole revaluation surplus to profit. Do not calculate depreciation on original cost after revaluation. Watch part-year ownership and residual value changes.