Test 7 Topics 10&11

• What is the nature of depreciable assets?

  • A depreciable non-current asset is a tangible asset that is used in the production or supply of goods and services and is expected to be used during more than one accounting period.
  • It has a limited useful life so will lose money value over time.
• What is the first cause of Depreciation?

  Wear and tear- loss in value of an asset due to continual physical use and exposure to elements causing deterioration.
• What is the second cause of Depreciation?

  Commerical Obsolescence- loss in value of an asset due to the product or service it produces becoming obsolete.
• What is the third and final cause of Depreciation?

  Technical Obsolescence- loss in value of an asset due to the asset becoming out of date. New and better technology introduced in the industry makes the old asset obsolete.
• What is the purpose of accounting for Depreciation?

  As we have seen before, if an asset is consumed or used up, it must be recognized in the income statement as an expense. 

  Depreciation can be defined as the allocation, as an expense of the depreciable amount of an asset over its useful life due to wear & tear and obsolescence. 

  The depreciable amount is the cost of the asset less the residual value. 

  The residual value is the estimated amount an asset is expected to be sold for at the end of its useful life.
• Explain how the "cost" of a depreciable asset is determined as per AASB 116 Before GST?

  • The purchase price of the asset The cost transporting the asset to the business premises , and the cost setting up the asset ready to use.
• what is useful life?


  the period of time for which the asset is expected to be used by a business
• What is residual value?


  the amount that is expected to be recieved from the sale of the asset at the end of it's useful life less than the cost of selling the asset.
• What is depreciable amount?

  The value of a fixed asset minus all of the accumulated depreciation that has been recorded against it
• What is accumulated Depreciation?

  Accumulated depreciation refers to the accumulated reduction in the value of an asset over time.
• What are the expenditures not included in the cost of an asset?

  • Annual licence fees and registration Annual insurance on assets Repairs and maintenaces
• What is the carrying amount?


  The original cost of an asset as reflected in a company's books or balance sheet, minus the accumulated depreciation of the asset
• What is the straight line method?

  cost-residual value divided by useful life - it is the same amount of depreciation per year
• What is the reducing balance method


  carrying amount x % rate - carrying amount = ( cost-acculumated depreciation - decreases more depreciation each year.)
• No, the carrying amount of an asset is not necessarily its market value. The carrying amount is the value at which an asset is recognized on the balance sheet, which is typically its cost less any accumulated depreciation or amortization and impairment losses.

  Market value, on the other hand, is the amount an asset would fetch in an open market. The carrying amount may be equal to market value, but it can also differ significantly depending on factors such as depreciation, impairment, or market conditions.
• What does AASB 116 cover?

  AASB 116 covers the accounting treatment for property, plant, and equipment.
• What aspects of property, plant, and equipment does AASB 116 address?

  AASB 116 addresses the determination of cost, depreciation, and impairment of property, plant, and equipment.
• Which standard applies to intangible assets?

  AASB 138 applies to intangible assets.
• What types of intangible assets does AASB 138 provide guidance on?

  AASB 138 provides guidance on patents, trademarks, and goodwill.
• What does AASB 140 deal with?

  AASB 140 deals with the accounting for investment property.
• What methods does AASB 140 outline for investment property?

  AASB 140 outlines methods for fair value measurement and cost measurement of investment property.
• What factors determine the choice of accounting method for an asset?

  The choice of method depends on the nature of the asset and the specific guidance provided by the relevant AASB standard.
• • What is included in the Cost Of Sales Account
  • Cost of Sales Add freight inwards 

  Customs Duty

  Less Discount Received 

  = Total Cost of Sales
• • What is included in the sales account?
  • Sales Less sales returns ( ) 

  Disc Allowed ( )

  Equals Sales (Net)
• What is in (Selling) and Distribution?

  • Selling: Advertising, Salesperson's Salary, Salesperson's commission,Depreciation of Store Fittings,Sales Manager's Salary, Doubtful Debts. Distribution: Freight Outwards, Delivery Vehicle Driver's Wages and Depreciation of Delivery Vehicles
• What is in Selling and (Distribution)?

  Freight Outwards, Delivery Vehicle Driver's Wages and Depreciation of Delivery Vehicles
• Why does a gain on disposal of an asset occur?

  A gain on sale of asset occurs when an asset is sold for more than the carrying amount.
• Why does a (loss)on disposal of an asset occur

  A loss on sale of asset occurs when an asset is sold for less than the carrying amount.
• What is the accounting cycle?

  • Identify and Analyze Transactions
  • Journalize Transactions
  • Post to Ledger Accounts
  • Prepare a Trial Balance
  • Make Adjusting Entries
  • Prepare an Adjusted Trial Balance
  • Prepare Financial Statements
  • Make Closing Entries
• what is the purpose of an income statement?


  the purpose of an income statement is to help the user ( in the case of a small business, the owner or manager) to make controlling decisions that will improve profit performance in the future.
• What is the purpose of an balance sheet?


  to show the financial position of a business
• What is depreciation?

  Depreciation can be defined as the allocation, as an expense of the depreciable amount of an asset over its useful life due to wear & tear and obsolescence.
• What is in (General and Administration Expense?

  • Rates and taxes Insurance Rent Depreciation of Buildings
• What is in and (Administration) Expense?

  Telephone, Stationery, Depreciation of Office Equitment, Depreciation of Office Furniture, Depreciation of Manager's car and Manager's Salary
• What is in Financial Expense?

  Interest on loans ( interest expense), loan establishment fees, Bank fees and charges, Interest on overdraft, interest on mortgage