1. avatar says

    Dear Sir,
    I am having trouble understanding why is depreciation entry at 5:27 in the NCA account? I thought we have separate account for depreciation and accumulated depreciation.
    Many thanks,

    • Profile photo of John Moffat says

      The the ledger there will be accounts for cost, accumulated depreciation, and depreciation expense.
      However, on the statement of financial position we show the net book value (cost less accumulated depreciation) and in this example we do not know the cost and accumulated depreciation separately (and we do not need to know them).

      Because we know the net book value at the beginning and end of the year, we need to sort out why this changed. It changed because we bought some, it changed because we sold some, and it changed because the depreciated this year. This years depreciation charge will appear as an expense in the Income statement and will also reduce the net book value (because it increases the accumulated depreciation).

  2. avatar says

    Dear sir,

    Very clear and concise but one question, just one.

    Why did you deduct the profits from disposal of the NCA in the operating activites?
    You mentioned that it is not regarded as cash inflow but why?

    Thank you!

  3. avatar says

    Yep, I understand the reason why you put long-term assets at a special category due to the advance payment to purchase those assets. And then, we just deduct the cost by using depreciation method so there’s nothing change with cash. However how to solve “Prepayment”. This account has the same procedure as long-term assets, hasn’t it? Should I put the expense of the year which is deducted from prepayment next to depreciation in Cash flow statement and use the amount of cash we recently credit to debit prepayment instead of the gap between two years to calculate the cash change ?

    • Profile photo of John Moffat says

      Prepayments are dealt with in exactly the same way as receivables. The change over the year is added to or subtracted from the accounting profit in order to arrive at the cash generated from operations.

      • avatar says

        Thank you very much :) Besides, There is a difference between the ACCA F3 paper and your lecture. In the paper Interest expense is stated in the category “Adjustment for” but in your lecture it is not. Is it a mistake of printing? Or just this example doesn’t need it? Thank you :)

      • Profile photo of John Moffat says

        You can either start with the profit before tax and then immediately add back the interest expense, or you can start with the profit before interest and tax – both end up exactly the same.
        Whichever you do, the interest paid is subtracted at the end (along with dividends paid and tax paid) to get the cash generated from operating activities.

  4. avatar says

    Hi, my first comment ever on this website.

    How would i account for deferred tax, if it appears in the income statement and in NCL? would i approach it the same way Tax liabilities was approached ( T accounts method) in this video?

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