ACCOUNTING FALCUTY
University of Economics
CHAPTER 3
TANGIBLE NON-CURRENT ASSETS
Ma. ĐỖ NGUYỆT ÁNH
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1 Definition and recognition
2 Characteristics and classification
3 Mesurement
CONTENTS
4 Accouting for Non-current Assets
5 Accounting for Depreciation
6 Accounting for Subsequent Expense
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Chapter Overview
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1. DEFINITION AND RECOGNTION OF
NON-CURRENT ASSETS
Non-current assets are assets that:
Are bought by a business for use in the long term
Are not normally acquired for resale
Non- Are use to generate income directly of indirectly
current for a business
Assets Are not normally liquid assets
Non-current assets are included:
Tangible assets (tangible fixed assets)
Intangile assets (Intangible fixed assets)
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1. DEFINITION AND RECOGNTION OF
NON-CURRENT ASSETS
RECOGNITION CRITERIA :
1. Future economic benefits will surely be obtained;
2. Their historical cost has been determined reliably;
3.Their useful life is at least 1 year;
4. It meets all value criteria as prescribed in regulations in force.
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2. CHARACTERISTICS AND CLASSIFICATION
OF NON-CURRENT ASSETS
They participate in many business cycles.
Characteristics In assets’ useful life, the value of non-current
assets is gradually reduced.
Physical existence
Classification Ownership
Purpose
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2. CHARACTERISTICS AND CLASSIFICATION
OF NON-CURRENT ASSETS
a Physical existence
Tangible Fixed Assets In-tangible Fixed Assets
Buildings and structures Land use rights
Machinery and equipment Copy rights
Means of transportation and Patents and inventions
transmitters Trademarks and trade names
Office equipment and furniture
Computer software
Perennial plants, working and
Licenses and franchises
producing animals Other intangible fixed assets
Other fixed assets
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2. CHARACTERISTICS AND CLASSIFICATION
OF NON-CURRENT ASSETS
b Ownership
Business assets Leased assets
Financial Lease
Operating lease
c Purpose
Fixed assets used in Fixed assets for welfare,
production and business non-business and project
activities activities
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3. MESUREMENT
1 Initial Measurement
2 Subsequent Expenditure
3 Depreciation and Carrying amount
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Relationship
Relationship between
between Useful
Useful Life
Life and
and Measurement
Measurement of
of Fixed
Fixed Assets
Assets
Ready to No used
be used
Pre-used
Pre-used Useful
Usefullife
lifeof
ofassets
assets
M
E Subsequent
A Cost Depreciation
Initial Cost
S
U
R Salvage Value
Historical Cost
E
M
E
N
T 10
3.1. INITIAL MEASUREMENT
Historical cost = all costs necessary to get the asset in place
and ready for use.
Accounting principle: cost principle
Cases:
Purchased asset
Asset acquired in exchange
Self-constructed asset
Lump-sum purchases
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Case
Case 1:
1: Purchased
Purchased Assets
Assets
HISTORICAL COST
Directly attributable
Non-refundable
costs of bringing the
Purchase purchased Tax Capitalized
asset to working
price Imported tax Interest
condition for its
Excise tax
intended use*
Note: (*) Examples for directly attributable cost
Initial delivery and handling costs
Installation cost
Professional fees (architects, engineer)
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CAPTIALIZED INTEREST
Borrow 6 billion VND,
interest rate 10% per annual
Start to build up Finished and ready to be used
01/02/2021 30/03/2021
01/02/2019
Interest : 1,2 bil (2 years) Interest: 100 mil (2 months)
Capitalized Interest No- Capitalized Interest
+ Historical Financial Expense
Cost
Case
Case 2:
2: Asset
Asset acquired
acquired in
in exchange
exchange
Utility/Funtion
2 assets have Field of business
the same Carrying amount
Similar Exchange Dissimilar Exchange
Historical Carrying amount of an Fair value + non-refundable
Cost exchanged asset tax+ Directly attributable costs
Exercise: 5.11
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Case
Case 3:
3: Self-constructed
Self-constructed asset
asset
HISTORICAL COST
Directly attributable
costs of bringing the
Actual Capitalized
asset to working
Cost Interest
condition for its
intended use*
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Case
Case 4:
4: Lump
Lump -- sum
sum purchases
purchases
Definition: A business may purchase a group of non-current assets for a
single price. This is referred to as a lump sum purchase
How to allocate the purchase price to the individual components
purchased?
Example: A company purchases land and building together for a total price
of 25 billion VND. The most recent property tax assessment from the local
government indicated that the building’s assessed value was 15 billion VND
and the land’s assessed value was 18 billion VND.
Required: Calculate the historical cost of land and historical cost of building
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3.2. SUBSEQUENT EXPENDITURE
SUBSEQUENT EXPENDITURE
costs incurred after initial recognition
AN EXPENSE • Is added to CARRYING AMOUNT of
in the period in which it is incurred the assets
• If it improves the condition of the asset
beyond the period of performance
Example:
•Modification of an item of plant to extend its
useful life, including increased capacity
•Upgrade of machine parts to improve the
quality of output
•Adoption of a new production process
leading to large reductions in operating costs
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3.3. DEPRECIATION AND CARRYING AMOUNT
Visual Wear &Tear:
The normal caused by impact of
degradation of nature environment
an asset from WEAR &TEAR
Invisible Wear & Tear:
ongoing usage
caused by the scientific
technology improvement
Accumulated Total amount an asset has been
Depreciation depreciated up until a reporting date
Carrying amount = Historical cost – Accumulated Depreciation
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3.3. DEPRECIATION AND CARRYING AMOUNT
Example:
Calculation Unit: Mil VND
Date Historical Depreciation Accumulated Carryin
Cost Expense per month Depreciation g
Amount
1/5/2020 240 0 0 240
1/6/2020 240 4 4 236
1/7/2020 240 4 8 232
1/8/2020 240 4 12 228
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4. Accouting for Non-current Assets
Document and account
Accounting for increases in non- current assets
Accounting for decreases in non-current assets
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4.1. DOCUMENT AND ACCOUNT
Accounting documents
- Purchase order
- Record of delivery of fixed assets
- Contract
- Invoices of purchase of assets and other
related paper
All fixed assets in enterprise must have a separate record.
Each fixed asset must be classified, numbered with its own card,
monitored in detail and reflected in the monitoring book of fixed
assets.
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4.1. DOCUMENT AND ACCOUNT
Acc 211- Tangible fixed assets
-An increase in historical cost of the - An decrease in historical cost of
tangible fixed asset due to the tangible fixed assets due to
completed constructions, purchase, transfer to other enterprises,
receipt of capital contribution, grant, liquidation or contribution into joint
donation, present, or surplus; venture, etc.
- An increase in historical cost of the - A decrease in historical cost of the
fixed assets after adjustment due to fixed asset due to dismantlement of
additional construction or one or several parts;
equipment, or upgrade; - A decrease in historical cost of the
- An increase in historical cost of the fixed asset due to re-evaluation
fixed assets due to re-evaluation.
Debit Balance: Current historical costs
of the fixed assets of the enterprise.
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4.1. DOCUMENT AND ACCOUNT
Acc 214 - Depreciation of fixed assets
Decreases in depreciation of fixed Increases in depreciation of
assets, investment properties because fixed assets or investment
the fixed assets or investment properties properties because the fixed
are liquidated, sold, or transferred to assets or investment properties
other enterprises or contributed to other are depreciated.
enterprises as capital.
Debit balance: Accumulated
depreciation of existing fixed
assets or investment properties
of the enterprise.
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4.2. ACCOUNTING FOR INCREASES IN
NON-CURRENT ASSETS
Time to record entries: when an asset is ready to be used
Calculate the historical cost
Step 1: Recording increasing non-current assets
Step 2: Transfer the capital sources ( if any)
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STEP 2: TRANSFER OF CAPITAL SOURCES (If any)
Owner’s Equity
EQUITY/ Borrowings
FUNDS Capital expenditure fund (Acc 441)
Investment and development fund( Acc 414)
Bonus and Welfare fund
NON - CURRENT Used for OWNER’S EQUITY
ASSET Operation (Acc 411)
Debit Acc 414,441
Total sponsored value
Credit Acc 411
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CASE
CASE 1:
1: PURCHASED
PURCHASED NON-CURRENT
NON-CURRENT ASSET
ASSET
Ex1: On date 27/3, a company buy a truck with
Acc Acc 211,
cost of 600 million VND on credit, VAT 10%.
111,112,331 213
This truck is used for the sale department and
(1) Historical purchased by investment and development
Cost fund. A company registers tax credit method
TK 133
(VAT) Historical cost = 600
1) Dr Acc 211 600 2) Transfer of capital source
Dr Acc 133 60 Dr Acc 414 600
Cr Acc 331 660 Cr Acc 411 600
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CASE
CASE 2:
2: purchasing
purchasing assets
assets in
in deferred
deferred payment
payment or
or installment
installment
Ex2: On date 27/3, company A took delivery from firm B of a truck on a
installment purchasing. This truck cost is 600 million VND, VAT 10%. It is used
for the sale department and purchased by investment and development fund. A
company registers tax credit method. Information related to installment
purchasing are below
-Amount being paid on delivery by cash at bank : 300 mil
-The balance in 24 monthly installments of 20 mil each.
ACCOUNTING RULE:
Historical Cost = the purchase price paid at the time of purchase in normal
Deferred Interest = Prepaid Expense
At the end of each period, an accountant calculates the deferred interest per
period and records as Financial Expense
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CASE
CASE 2:
2: purchasing
purchasing assets
assets in
in deferred
deferred payment
payment or
or installment
installment
Ex2: On date 27/3, company A took delivery from firm B of a truck on a
installment purchasing. This truck cost is 600 million VND, VAT 10%. It is used
for the sale department and purchased by investment and development fund. A
company registers tax credit method. Information related to installment
purchasing are below
-Amount being paid on delivery by cash at bank : 300 mil
-The balance in 24 monthly installments of 20 mil each.
Historical Cost =
Deferred Total amount Total amount
Interest of deferred payment of a normal payment
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CASE
CASE 2:
2: purchasing
purchasing assets
assets in
in deferred
deferred payment
payment or
or installment
installment
Ex2: On date 27/3, company A took delivery from firm B of a truck on a
installment purchasing. This truck cost is 600 million VND, VAT 10%. It is used
for the sale department and purchased by investment and development fund. A
company registers tax credit method. Information related to installment
purchasing are below
-Amount being paid on delivery by cash at bank : 300 mil
-The balance in 24 monthly installments of 20 mil each.
1) Dr Acc 211 600 mil 2) Transfer of capital source
Dr Acc 414 600
Dr Acc 133 60
Cr Acc 411 600
Dr Acc 242 120
Cr Acc 112 300
Cr Acc 331 480 (=24 months* 20 mil/month)
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