Initial measurement:

Capital expenditure

Capital expenditure is the costs of acquiring non-current assets.

According to IAS 16 the following costs may be capitalised in the statement of financial position on acquisition of a non-current asset:

(Mnemonic: IIIID)

Initial cost (purchase price)

Import duty not refundable(if asset is bought from other country)

Installation costs

Intended use relating costs (lawyer, surveyor costs)

Delivery costs

Finance cost

Revenue expenditure

Revenue expenditure is expenditure on maintaining the capacity of noncurrent assets. Costs that are regarded as revenue expenditure should be  expensed in the statement of profit or loss and other comprehensive income and may not be capitalised according to IAS 16 are:

(Mnemonic: RIM)

Repairs expenses

Insurance expenses

Maintenance expense

After we’ve purchased the non current asset the accountant needs to record that non current asset into the non- current asset register.

A non-current asset register is generally maintained in the finance department.

Companies can purchase specifically designed packages or a register can simply be maintained on an Excel spreadsheet.

And this is used to reconcile the NCA in the NCA register to the individual asset in place, ie, an example of control procedure by company.
Sample of Non-current asset register:

Asset type Date purchased Description Cost Depreciation Carrying value Disposal proceeds Disposal date
Machine 1 July 2013 Drink machine $7m        
  Year ended 31 DEC 2013     $700,000 $6.3m    
  Year ended 31 DEC 2014         $3m Jan-2014


Subsequent measurement

Cost model : cost-accumulated depreciation*=carrying value

Depreciation method should be reviewed each year to see whether or not it is reasonable. A change in depreciation method should be treated as a change in accounting estimate and prospective adjusting method according to IAS 8 should be applied. Ie, disclose the depreciation method in the note of the financial statements.

Revaluation Model: revalued amount

  • Depreciation
  • Revaluation
  • Disposal
  • Impairment [IAS 36] (see F7 & P2)
  • Non-current asset held for sale & discontinued operations[IFRS5] (see F7 & P2)


IAS 16 the test was whether the expenditure was Capital or Revenue e.g. an improvement could be capitalised but maintenance or repair could not be capitalized.

The following circumstances should be capitalized:

  • Life extension
  • major overhaul cost
  • separate component, eg, new enguine for an aircraft
  • energy saving, eg, improving production capacity


Methods of depreciation

  1. straight line basis depreciation:
    Idea: An equal amount is charged in every accounting period over the life of the asset.


    Depreciation per year = original cost – estimated residual value

    Estimated useful life

    Or = % X cost

  2. reducing balance basis depreciation
    Idea: at the start of year we charge more depreciation and at the end of the year we charge less depreciation given the fact that machine will be less efficient at the end of its life, ie, less revenue can be earned so less expenses matched against with it.


    Depreciation per year = % X carrying value


    Dr Depreciation expense            (Statement of profit or loss and other comprehensive income)

    Cr Accumulated depreciation          (Statement of financial position)
    Financial statements

    Non–current assets $
    Property, plant & equipment(note1) 184,490



      Cost Accumulated depreciation Carrying value
    Non-current assets:      
    Property 150,000 (12,000) 138,000
    Motor vehicles 45,000 (11,250) 33,750
    Plant & Machinery 26,000 (13,260) 12,740
      221,000 (36,510) 184,490


    2, revaluation


    Basic Idea:

    As time goes by initial costs of asset may be very different from their market value.

    Eg, if a company purchased a property 35 years ago and therefore subsequently charged depreciation for 35 years, it would be safe to assume that the carrying value of the asset would be significantly different from today’s market value.

    If revaluation policy per IAS 16 may be adopted (i.e. the business has a choice), and if so the following rules must be applied per the standard:

    1. No Cherry picking(If a company chooses to revalue an asset they must revalue all assets in that category.)
    2. Regular (Revaluations must be regular but IAS 16 doesn’t specify how often)
    3. Revalued amount(Subsequent depreciation must be based on the revalued amounts.)
    4. Revaluation Reserve (Gains from revaluations are taken to revaluation reserve rather than retained earnings unless they are sold)



    Revalued amount X
    CV of asset on revaluation date (X)
    Revaluation gain/(loss) X/(X)




    DR Asset cost                    (Statement of financial position)

    DR Accumulated depreciation    (Statement of financial position)

    CR Revaluation reserve          (Statement of financial position)


    3, Disposal

    Basic Idea

    An asset should be removed from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal


    Cash sale/part exchange X
    CV of asset at disposal date (X)
    Profit/(loss) on disposal X/(X)



    1. Cost Removal
      • DR Disposals
      • CR Non-current asset Cost
    2. Accumulated Depreciation Removal
      • DR Accumulated Depreciation
      • CR Disposals
    3. Proceeds to be dealt with in cash/part exchange

      In cash:

      • DR Bank
      • CR Disposals

      Part exchange:

      • DR Asset Cost
      • CR Bank
      • CR disposals