Chapter 1 FRK 122
 Present economic resource
 Controlled by the entity
 Due to past events
Non-Current Asset
Controlled by the entity for a period longer
than 12 months
Current Asset
Controlled by the entity for a period shorter
than 12 months
Tangible non-current asset
 Assets one can experience with one’s
natural senses
 Controlled by the entity for a period
longer than 12 months
 E.g (property, plant & equipment)
Intangible non-current assets
 Assets one cannot experience with
one’s natural senses
 Controlled by the entity for a period
longer than 12 months
Cost of non-current asset = purchase price (historical price) + (any costs incurred to get asset ready
for use)
Asset
Depreciation
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The systematic allocation
Of the depreciable amount of an asset
Over the estimated useful life of the
asset
To reflect the pattern in which income
is generated through the useful life of
the asset
Depreciation accounts for the usage of an asset and is recognised as an expense in the
Statement of Profit/loss…
Depreciation does not account for the decrease in the value of an asset
Depreciation of an asset starts when the asset is ready for use, when sold the asset will no
longer be depreciated
Depreciation is an expense and is a decrease in equity and is therefore debited in general
journal & ledger, depreciation must be closed off in the profit/loss account
Unless asset is scrapped, depreciation is recorded at the end of the financial year
Depreciable amount
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Residual Value
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Useful Life
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Cost of the asset less its residual value
This is the amount depreciation is
calculated on
Estimated amount asset will be worth
at the end of its useful life
Estimated when asset is ready for use
Estimated period of time the asset will
be used by the entity or the number of
production units expected from the
use of the asset
Determined when asset is ready for use
Accumulated Depreciation
Depreciation expense per year is accumulated over the life of an asset, known as a contra asset
(negative asset)
Carrying Amount
Cost of Asset – Accumulated Depreciation
 Reflects the amount that can still be
depreciated
 Shows the entity has not yet recovered
the full cost of the asset through usage
Depreciation Methods
Straight Line
The same amount of depreciation is allocated every year over the useful life of the asset (fixed
instalment method)
(Cost – Residual) X Depreciation Rate X Number of months/12
[(Cost – Residual Value)/ Useful Life] X Number of months/12
Diminishing Balance
Depreciation is calculated on the carrying amount of the asset
(cost – Accumulated Depreciation) X depreciation Rate X Number
of months/12
Production Unit Method
Depreciation according to the actual use of the asset
(Cost – Residual Value)/ estimated units X actual units/1
Asset Realisation (asset disposal)
4 ways of asset disposal
 Scrapping of asset – no profit realised,
and no loss incurred
 Selling of asset – profit realised
 Selling of asset – loss incurred
 Trade-in where a loss is incurred
When an asset is realised an asset realisation account is used which is used to determine whether
profit was realised or if a loss was incurred, The account is not an asset, equity or liability
Amortisation is depreciation for intangible assets
Impairment of Assets – downward adjustment in value of a non-current asset (impairment loss)
Carrying amount for intangible non-current assets = cost – accumulated
amortisation
Carrying amount on non-current assets = cost – accumulated depreciation
The contra account for impairment losses is the accumulated impairment loss account which is a
contra asset and is treated like accumulated depreciation