Tutorial 6 Non-Current Assets
1
LTJ 2020
Tutorial 6 – Accounting for Non-current assets
Section A:
1 (a) Describe capital expenditure and revenue expenditure. How are
they to be treated in the accounts?
Capital expenditure is incurred when a business spends money on
buying or acquiring non-current assets and to increase the value of
existing non-current assets. These assets are bought /acquired mainly
for day to day business use. There are not intended for resale. Capital
expenditures also involve expenses to increase the value of existing
non-current assets to make them more efficient and effective. Capital
expenditure includes all the cost/expenses that are incurred to bring
the non-current assets to its current location and current condition so
that it can be used for the business. Capital expenditure should be
capitalised and depreciated over its useful life.
2 (a)What are the common methods of depreciation? Explain.
The most common methods are the straight line and reducing balance.
The staright line method
The cost of the non-current assets are spread over its useful life and
an equal amount of depreciation is charged to the Statement of Profit
or Loss every year.
Reducing balance method
A fixed percentage for depreciation is deducted from the cost in the
first year. In the following years, the fixed percentage is applied on
the net book value, i.e. after deducting previous years’ depreciation
charges. A different (reducing) amount of depreciation is charged
every year.
(b) Compare depreciation with accumulated depreciation. Explain
how they are treated in the accounts.
Depreciation is an expense. Therefore, it is deducted from the revenue
