Accounting for non-current assets: acquisition, depreciation methods, disposal, and the non-current asset register
Domain 3 covers capitalisation, depreciation, disposal and the non-current asset register. Initial cost under IAS 16 includes purchase price, import duties, non-refundable taxes and directly attributable costs of bringing the asset to use; it excludes training, administration and abnormal waste. Depreciation allocates the depreciable amount (cost − residual value) over useful life.
Methods
Straight-line: (cost − residual value)/life each year. Reducing balance: a percentage of carrying amount, giving a higher early charge. Units of production: (cost − residual value) × units used/total expected units. Record Dr Depreciation expense, Cr Accumulated depreciation. Disposal: Dr accumulated depreciation, Dr disposal, Cr asset cost; record proceeds Dr bank, Cr disposal; the balance is a gain (credit) or loss (debit).
Worked example
A machine costs N$60,000, residual value N$5,000, life 5 years, straight-line. Annual depreciation = (60,000 − 5,000)/5 = N$11,000. After 3 years accumulated depreciation is N$33,000 and carrying amount N$27,000. Sold for N$30,000: gain = 30,000 − 27,000 = N$3,000. Reasoning: the gain compares proceeds with carrying amount, not original cost; depreciation for the current year to disposal date must still be charged.
Register
The register lists each asset, location, cost, date acquired, depreciation charge, accumulated depreciation and carrying amount. It is a memorandum record, not part of double entry, and should reconcile to the non-current asset ledger.
Traps
Depreciating below residual value; charging a full year in the year of disposal when policy is monthly; capitalising repairs; treating a disposal gain as sales revenue; omitting assets from the register reconciliation.