ACCA Applied Skills · Financial Reporting

Tangible non-current assets: formula sheet

Full chapter guide

Key formulas

Cost of PPE: Cost = purchase price (net of trade discounts and rebates) + non-refundable taxes + directly attributable costs + initial estimate of dismantling/restoration costs + qualifying borrowing costs; Recoverable taxes such as VAT you can reclaim are not part of cost. Settlement (early payment) discounts are not trade discounts; follow the question's wording.
Deferred payment: Cost = present value of payments = sum of (each payment × its discount factor); Interest = unwinding of the discount, charged to profit or loss (or capitalised if the asset is qualifying under IAS 23). With a single payment, this is just payment × discount factor.
Capitalised borrowing costs (specific loan): Capitalised = actual interest in the capitalisation period − investment income on unused funds; Only for the period when capitalisation is allowed; stop when the asset is ready for use and pause during extended suspension.
Capitalised borrowing costs (general borrowings): Capitalised = weighted average expenditure on the asset for the period × capitalisation rate; Weight each amount of expenditure by the part of the period it was outstanding (for example, months ÷ 12 for a part-year). Capitalisation rate is the weighted average borrowing cost on general borrowings. Capitalised amount cannot exceed actual interest.
Decommissioning cost: Asset and provision = estimated future cost × discount factor; Unwinding of discount each year = opening provision × discount rate, shown as a finance cost.
Costs to exclude: Expense: admin and general overheads, staff training, advertising, opening costs, initial operating losses, abnormal waste; Use the 'bringing to location and condition' test.
Depreciable amount: Depreciable amount = Cost − Residual value; Cost includes all costs to bring the asset to working condition. Residual value is the amount you expect to get at the end of its life, net of disposal costs.
Straight-line depreciation: Annual charge = (Cost − Residual value) ÷ Useful life; Pro-rate by months if the asset is bought or sold part-way through the year, if the question says so.
Reducing balance depreciation: Annual charge = Rate × Opening carrying amount; Residual value is not deducted before applying the rate. The rate itself takes account of it.
Change in estimate: New annual charge = (Carrying amount at date of change − New residual value) ÷ Remaining useful life; Applied prospectively. No prior year adjustment and no restatement.
Capital vs revenue test: Capitalise if it enhances, extends or replaces a component and future economic benefits flow; otherwise expense; Repairs and day-to-day servicing are always expensed.
Component replacement: New carrying amount = Old carrying amount − Carrying amount of replaced part + Cost of new part; The old part is derecognised, and any loss on it goes to profit or loss.
Revaluation gain or loss: Fair value − carrying amount at revaluation date; Positive is a gain (OCI and surplus). Negative is a loss. Always bring depreciation up to the revaluation date first.
Gain entry: Dr Asset, Cr Revaluation surplus (OCI); If a previous loss on the same asset went through profit or loss, credit profit or loss first up to that amount.
Loss entry: Dr Revaluation surplus (up to the balance for that asset), Dr Profit or loss (excess), Cr Asset; Apply the surplus asset by asset, not across the class.
Depreciation after revaluation: Revalued carrying amount ÷ remaining useful life; Use the revised residual value and life if given. Land is not depreciated.
Excess depreciation transfer: Depreciation on revalued amount − depreciation on original cost; Dr Revaluation surplus, Cr Retained earnings. Permitted by IAS 16; exam questions usually tell you to make it.
Equivalent transfer calculation: Surplus at revaluation ÷ remaining useful life; Gives the same annual transfer when the life and residual value are unchanged by the revaluation.
Profit or loss on disposal: Profit/(loss) = Net disposal proceeds − Carrying amount at disposal date; Net proceeds are the sale price less selling costs. A positive result is a profit.
Carrying amount at disposal: Carrying amount = Cost (or valuation) − Accumulated depreciation up to disposal date; Include depreciation for the part-year to the date of sale, if the entity's policy charges it.
Disposal journal: Dr Cash/receivable (proceeds); Dr Accumulated depreciation; Cr Asset at cost/valuation; balance to profit or loss; A debit balance is a loss. A credit balance is a profit.
Part-exchange: Proceeds of old asset = Fair value of old asset (normally the trade-in allowance); Cost of new asset = Cash paid + Fair value of old asset; Cash paid = Cost of new asset − Allowance holds only where the allowance equals the old asset's fair value. Otherwise use the fair value of the old asset as proceeds.
Revaluation surplus on disposal: Dr Revaluation surplus; Cr Retained earnings (surplus relating to the asset sold); Permitted by IAS 16. It is a reserves transfer and does not appear in profit or loss.
Recoverable amount: Recoverable amount = higher of (FVLCOD, VIU); If either figure is above carrying amount, the asset is not impaired.
Fair value less costs of disposal: FVLCOD = fair value − direct costs of disposal; Costs of disposal are incremental selling costs such as legal fees. Finance costs and tax are not included.
Impairment loss: Impairment loss = carrying amount − recoverable amount (only if positive); Never negative. A higher recoverable amount does not create a gain here.
CGU allocation order: 1) Goodwill 2) Other assets pro rata to carrying amount; Do not reduce any asset below the highest of its FVLCOD, VIU or zero. Reallocate any excess to the other assets pro rata.
Revalued asset loss: Loss → OCI up to the revaluation surplus on that asset; excess → profit or loss; Applies asset by asset, not across the whole class.
Reversal limit: Reversed carrying amount ≤ carrying amount had no impairment been recognised (after depreciation); Goodwill impairment is never reversed.
Recognition condition: Recognise grant only if reasonable assurance that (1) conditions will be met and (2) grant will be received; Receiving cash alone is not enough. Conditions matter.
Deferred income method: annual release: Annual release to P&L = Grant ÷ Useful life; Assumes the grant is released in line with straight-line depreciation. Split between current and non-current liabilities.
Deduction method: carrying amount: Carrying amount = Cost − Grant − Accumulated depreciation on (Cost − Grant); Depreciation = (Cost − Grant − Residual value) ÷ Useful life.
Net P&L effect (both methods): Depreciation on full cost − Grant release = Depreciation on (Cost − Grant); Both methods give the same profit. Only the statement of financial position differs.
Repayment of a grant: Treat as change in estimate; set against unamortised deferred income first; balance to P&L; For an asset grant under the deduction method, increase the carrying amount and charge catch-up depreciation immediately.
Definition test: Held for rent and/or capital appreciation → investment property (IAS 40); Used in production or administration → IAS 16. Held for sale in ordinary course → IAS 2.
Initial measurement: Cost = purchase price + directly attributable transaction costs; Applies under both models.
Fair value model gain or loss: Gain or (loss) = closing fair value − opening carrying amount; Recognise in profit or loss. No depreciation is charged.
Cost model carrying amount: Cost − accumulated depreciation − impairment; Same treatment as IAS 16 cost model.
Owner-occupied to investment property (fair value model): Revalue under IAS 16 up to the date of change; any difference between carrying amount and fair value goes to OCI (revaluation surplus), or to profit or loss as a loss where it reverses an earlier loss; A decrease first reduces any existing surplus for that asset. The rest of the decrease is an expense.
Inventory to investment property (fair value model): Difference between fair value and previous carrying amount → profit or loss; The change must be evidenced by the start of an operating lease to another party.
Investment property to owner-occupied or inventory: Deemed cost for later accounting = fair value at date of change; The change must be evidenced by the start of owner-occupation or of development with a view to sale.
Measurement on classification: Held for sale amount = lower of (carrying amount, fair value less costs to sell); Measure just before classification under the relevant standard first (including depreciation up to that date), then compare.
Impairment loss on classification: Loss = carrying amount − fair value less costs to sell (if positive); Charge to profit or loss. If the asset was revalued, treat the loss as a revaluation decrease, and the revaluation surplus is absorbed first.
Fair value less costs to sell: Fair value − incremental selling costs; Costs to sell are only those directly attributable to the sale, such as legal fees and agent commission.
Held-for-sale criteria: Available for immediate sale + sale highly probable + expected within 12 months; All conditions must be met at the reporting date to classify the asset as held for sale.
Depreciation: No depreciation after classification as held for sale; Depreciate up to the date of classification, then stop, even if the asset is still in use.
Discontinued operation on the face of profit or loss: Post-tax profit or loss of the operation + post-tax gain or loss on remeasurement or disposal; Shown as one line below profit from continuing operations.

Quick revision

Cost includes purchase price less trade discounts, import duties, non-refundable taxes, directly attributable costs and initial estimate of dismantling costs.
Do not capitalise general overheads, training or abnormal waste.
Subsequent expenditure is capitalised only if it improves the asset or replaces a component; repairs and maintenance go to profit or loss.
Depreciation = (cost − residual value) ÷ useful life for straight line; charge it from when the asset is available for use.
Change in estimated life or residual value is applied prospectively, not by restating prior years.
Under the revaluation model, increases go to other comprehensive income and the revaluation surplus unless reversing an earlier loss on the same asset in profit or loss.
Revalue whole classes of assets, not single items, and keep values up to date.
Disposal gain or loss = proceeds − carrying amount at disposal, taken to profit or loss.
Impairment loss arises when carrying amount exceeds recoverable amount, which is the higher of fair value less costs of disposal and value in use.
Under IAS 20, a grant related to an asset can be deducted from carrying amount or shown as deferred income; either way it is released over the asset's life.
Investment property may use the fair value model, with changes in value in profit or loss and no depreciation, or the cost model.
An asset held for sale is measured at the lower of carrying amount and fair value less costs to sell, and is no longer depreciated.

Common mistakes

Capitalising staff training and general overheads Fix: Training and general overheads are never directly attributable. Expense them.
Including recoverable sales tax in cost Fix: Only non-refundable taxes are included. Reclaimable tax is a receivable from the tax authority.
Capitalising repairs and routine maintenance. Fix: Ask whether it adds a new benefit or only restores the original standard of performance. If it only restores, expense it.
Restating prior years when useful life changes. Fix: A change in estimate is prospective under IAS 8. Spread the carrying amount over the remaining life from the date of change.
Taking a revaluation gain to profit or loss. Fix: A gain goes to OCI and the revaluation surplus, except to the extent it reverses an earlier loss on the same asset that was charged to profit or loss.
Comparing fair value with original cost instead of carrying amount. Fix: Always depreciate to the revaluation date first, then compare fair value with the carrying amount.
Forgetting depreciation for the year of disposal. Fix: Always ask: when was the asset sold? Add depreciation from the last year end to that date before finding carrying amount.
Calculating the gain using cost instead of carrying amount. Fix: Profit or loss is always proceeds less carrying amount. Cost is only one part of that.
Using the lower of FVLCOD and VIU as recoverable amount. Fix: Recoverable amount is always the higher of the two. Repeat it as a rule: an owner would choose the better option.
Forgetting to deduct costs of disposal from fair value. Fix: Always write FVLCOD = fair value − costs. Do not deduct costs from VIU.

Exam tips

In objective tests, read the list of costs twice and write Asset or Expense beside each. Marks are all or nothing, so one wrongly included item loses the question.
Watch the wording on tax and discounts: trade discounts reduce cost, recoverable tax is excluded, non-refundable tax is included.
In written answers, show a cost table with each item and a short reason for each exclusion. Explanations earn marks even when a number is wrong.
For borrowing costs, always state the capitalisation start, any suspension and the end date, and work out the months before you calculate.
Check whether a decommissioning obligation is mentioned. It is a common extra step that is easy to miss.
In Section A, read the verb first: repair, maintain or service means expense. Upgrade, extend or replace a part means capitalise.
When a question gives costs split by part with different lives, it is signalling component depreciation. Do not use a single blended rate.
For a change in useful life, show the carrying amount at the change date as a separate line. Method marks sit there even if the final figure is wrong.