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February 2, 2021 at 3:10 pm
If there is a note added – like that of disposal during the year of an item of plant which had so and so accumulated depreciation (thus we minus this from original cost and put disposal of carrying amount). Similarly, under the t account of NBV when you add the depreciation charge, does the accumulated depreciation of the disposal have any effect on its value also in anyway ?
John Moffat says
February 2, 2021 at 5:24 pm
Yes. The profit or loss on sale is the difference between the sale proceeds and the net book value of the asset sold (as I explain in my lectures on non-current assets).
February 2, 2021 at 6:09 pm
Sir I think you misunderstood me, maybe because I did not frame my question clearly, but thanks God, I found the answer somehow.
First we do the Acc.Depr T account, and find the Depreciation charge. In this t-account is the Acc.Depr of the Disposal added to the Debit side and thus removed and as a result affecting the overall value of the Depreciation Charge on the Credit side, the answer of which would later be added to the NBV t account on credit side for further calculations in order to find the Purchase amount on the debit side.
Sorry if I made my question seem ambiguous, and thankyou once again for your rich lectures and notes, and swift help at the forums always 🙂
February 1, 2021 at 5:15 pm
Since Revaluation surplus is an item that belongs to the original Non Current Cost T -account instead of the NBV/Carrying T-Account; would there be any adjustments to make to the Revaluation surplus inserted into the NBV T-Account, shown on the SOFP, besides reducing the revaluation surplus amt of the last year? Any adjustments connected to the Acc.Depreciation amount ? Please do also provide reason.
February 1, 2021 at 5:31 pm
My reasoning would be: since NBV is original Non Current Asset less Acc.Depreciation. We thus remove Acc.Depr amount from the Revaluation surplus as:
Dr. asset cost
Dr Acc Depreciation
The total amount of above forms:
Cr. revaluation surplus.
As we are playing with the T account of Carrying Amount (Asset cost less Acc.Depr), we do not have to enter the Acc.Depr. Portion of the Revaluation Surplus, just like with another example – Disposals – in the NBV T-Account we enter the Disposals at carrying amount (Original asset cost less Acc.Depr) as you showed in the lecture above.
February 2, 2021 at 6:30 am
A revaluation changes both the balance in the cost account and automatically therefore the NBV. The entries for a revaluation are all explained in the lectures on Limited Companies.
February 1, 2021 at 4:44 pm
1. Does the Non Current Asset displayed in the FS always represent NBV/Carrying Amount ? Or if Accumulated Depreciation is given, then it means at Original cost ? Is there some default rule ?
2. When calculating using the T account for Cash flows – is this memorandum style or dual effect style ?
January 12, 2021 at 12:35 pm
do we have to take adminis. expense into account?
January 12, 2021 at 1:45 pm
The profit before tax is always already after charging all expenses.
December 30, 2020 at 7:32 am
thank you for the amazing lecture. hope i got this right: 1) dividends paid is the sum of retained earnings of previous year and profit of the year(after tax) less retained earnings of this year. 2) In the event we have non current liabilities of current year exceeding that of previous year, we will adjust cash flow from financing activities by adding the difference and vice versa. 3) i was wondering why we add interest to profit and again subtract the same. i felt that the interest will cancel out and don’t need to be added as it has no effect.
December 30, 2020 at 8:35 am
(1) and (2) are correct.
For (3), we add back to the profit the interest charged for the year, and then subtract the interest actually paid. Usually in the exam the two are the same (in practice they could be different because some of the interest might still be owing), but we are required to show the interest payment separately by the accounting standard.
December 16, 2020 at 11:57 am
Thank you sir so much for this amazing lecture.
December 16, 2020 at 3:57 pm
Thank you for your comment 🙂
November 11, 2020 at 1:22 pm
Thankyou for the important lengthy lecture. I have a couple of question arising from this as a result.
1) Are the values of the Non Current Asset in the SOFP always at NBV instead of original cost (I need a revision), as you said to the other user right now -we don’t know the original cost.
2) Under Cashflow from Investments; within the T-table, when you credited 20,000 why did you debit reference to Sales. Does sales decrease?
3) Under Cashflow from Finance, even though there was issuance of shares of 70,000, what guarantee we have that all the money was paid for the purchase of those shares, and nothing was left pending to be called upon for by the Company later on from the Shareholders. If we applied caution to derive calculations for all other workings, we should consider here as well this point, don’t you think as well ?
November 11, 2020 at 2:56 pm
1. The SOFP always shows the NBV (but might give the breakdown between the cost and the accumulated depreciation).
2. By t-table, I assume you mean the t-account. I wrote sales simply because it was the sale of the asset. The double entry is not to sales at all (and I explain the double entries in my earlier lecture). However this is only quick workings to sort out what was spent on assets. Nobody looks at the workings in the exam and nobody cares what the double entry is. In an exam I would not have written anything against the figures.
3. If there was money still to be called up then the question would have tell you. These days money is not left to be called up – it could happen in theory, but it doesn’t happen in practice.
November 11, 2020 at 3:20 pm
2. Yes you are right. Would the debit be towards disposal ?
3. So in general practice nowdays, it has become a custom for most to pay full on payment at first go itself ? That’s why by default we consider issuing of shares = cash inflow
September 30, 2020 at 9:43 pm
Sir please in the previous lectures on non-current assets, you said when we are to credit the non-current asset with disposal, you credit it with the original cost of the asset that was sold but here you credited it with the net book value. So please which is which?
October 1, 2020 at 9:28 am
In this example, if we knew the cost of the asset and the accumulated depreciation, then we would make the full entries (credit cost, debit disposal; and debit accumulated depreciation, credit disposal).
However we don’t know the cost and accumulated depreciation here. All we know is the net book value, so we credit net book value with the book value of the asset sold.
October 1, 2020 at 6:20 pm
Understood. Thank you Sir.
October 2, 2020 at 9:12 am
You are welcome 🙂
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