topic 27 schedule of non current assets

• Impairment - a negative revaluation
• Full example of a SONCA:

  • ncas are the columns
  • at cost section: bal bd, revaluation, additions, disposals, impairment and bal cd (total)
  • depreciation section: bal bd, charge for the year, elimination on disposals, elimination on revaluation, elimination on impairment and bal cd (total)
  • bal cd - bal cd = sofp figure
• Elimination on something = The aggregate depreciation
• Time apportioned depreciation - a firm's depreciation policy may:

  • allow a full year's depreciation in the year of acquisition (regardless of the date of acquisition) and allow no depn in the year of disposal (regardless of the date of disposal)
  • depreciate the assets on a time apportioned basis, where the annual depn is apportioned during the years of acquisition and disposal according to how many months the asset is owned by the business
• Impairment of assets:

  • a nca is impaired if it is worth less than its carrying amount (nbv), this is an application of the prudence concept and the treatment is similar to inventory valuation where inventories are valued at the lower cost of NRV
  • where ncas are impaired they should be placed on the SOFP at the lower of cost or the recoverable amount and depreciated based on the recoverable amount not cost
• Benefits of SONCAs:

  • assists in the reporting of the financial position/performance, it shows a breakdown of the net book value between the cost and depreciation components
  • the schedule can be used by different stakeholder groups to interpret the business such as analysing the impact of ncas on profitability and cash flow
  • it complies with the requirements of the regulatory framework and thus supports showing a true and fair view
  • the schedule satisfies various criteria in that it is understandable, objective and comparable
• Limitations of SONCAs:

  • the schedule contains historical information from the previous year and may not reflect the current position of the business
  • the schedule is in a summarised format, even in the notes, there is not a detail break down of the cost for individual asset addition and disposals
  • the schedule could be used to window dress the financial statements through creative accounting, eg. revaluation could be used to boost the asset worth
  • also, there are elements of the depn policy which are subjective and so could again be used to improve the worth of the asset base