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ACCA Applied Knowledge · Financial Accounting

Tangible Non-Current Assets for ACCA Financial Accounting

Tangible non-current assets are physical items a business uses over several years. Under IAS 16 you record them at cost, spread that cost over their useful life as depreciation, and remove them on disposal, calculating any gain or loss. To solve questions, split capital from revenue spending first, then depreciate, then dispose.

What this chapter covers

This chapter covers how a business records physical assets such as property, plant and equipment. You learn what goes into cost, how depreciation spreads that cost over the asset's useful life, what happens when an asset is sold or scrapped, and how a revaluation changes the figures. You also learn how a register supports control, and what IAS 16 requires you to show in the financial statements.

The chapter links to almost every other part of the FA paper. Depreciation and disposal gains or losses go through the statement of profit or loss. Carrying amounts sit in the statement of financial position. Journals use the double-entry rules you learned earlier. Revaluation connects to other comprehensive income and equity.

The chapter also feeds Section B. The accounts preparation question usually includes non-current assets, so errors here can cost marks in a 15-mark question as well as in the objective test questions in Section A. Mastering it makes the later chapters easier.

FA has 35 two-mark objective test questions in Section A and two 15-mark multi-task questions in Section B, and non-current assets can appear in both. The calculations are short and rule-based, so they are marks you can win with practice. The same depreciation and disposal logic also appears inside accounts preparation and consolidation questions, so one weak point can cost you in several places. Each exam needs 50% to pass, so secure marks on predictable topics like this.

Tangible non-current assets: topics in the order to study them

  1. 1Capital vs Revenue ExpenditureStart here because every later step depends on deciding whether spending becomes an asset or an expense.
  2. 2Depreciation Methods and CalculationOnce you know what is capitalised, learn how its cost is spread over time; this is the core calculation skill.
  3. 3Acquisition and Disposal of Non-Current AssetsDisposals need depreciation knowledge, so study them after the methods, including part-exchange and the gain or loss.
  4. 4Revaluation of Non-Current AssetsRevaluation builds on carrying amounts and depreciation, and adds a revaluation surplus in equity.
  5. 5Non-Current Asset Register and ControlThis is mostly conceptual, and it makes sense once you have seen how the ledger figures are produced.
  6. 6IAS 16 Disclosure and Financial Statement PresentationFinish with presentation, which pulls all the figures together as they appear in the financial statements.

How to prepare Tangible non-current assets

Aim to learn the rules first, then drill the calculations until they are fast. Short daily sessions work well on a phone.

  1. Learn the test for capital versus revenue spending, and list what counts as cost: purchase price, delivery, installation and testing, less trade discounts.
  2. Practise straight-line and reducing balance depreciation by hand until you can do both without notes, including part-year and changed-estimate cases.
  3. Write the journals for purchase, depreciation and disposal. Check each one balances before moving on.
  4. Work disposal questions in a fixed layout: proceeds minus carrying amount at disposal date gives the gain or loss.
  5. Practise revaluation: compute the surplus, credit it to the revaluation surplus, and then depreciate on the new figure.
  6. Do timed objective questions of each type: multiple choice, multiple response and number entry. Read the exact number of answers required and the unit of the answer.
  7. Finish with a full accounts preparation question and check that your non-current asset figures agree between the statement of profit or loss and the statement of financial position.

Common mistakes in Tangible non-current assets

  • Expensing items that should be capitalised, or the reverse

    Fix: Ask whether the spending adds future benefit or only maintains the current level. Capitalise costs to bring the asset to working condition.

  • Forgetting the residual value in straight-line depreciation

    Fix: Write the formula first and check the question for any residual value before calculating.

  • Applying the reducing balance rate to cost every year

    Fix: Apply the rate to the opening carrying amount each year, so the charge falls.

  • Calculating disposal gain or loss from cost instead of carrying amount

    Fix: Work out depreciation to the date of sale first, then compare proceeds with the carrying amount.

  • Posting a revaluation surplus to profit or loss

    Fix: Take it to the revaluation surplus in other comprehensive income. Only reversals of earlier losses on the same asset follow different rules, so learn that exception.

  • Missing the answer format in objective questions

    Fix: Read the instruction before calculating, and check the required number of selections and the format of number entry answers.

Last-day revision: Tangible non-current assets

  • Capital expenditure creates or improves an asset; revenue expenditure maintains it and goes to profit or loss.
  • Cost includes purchase price, delivery, installation, testing and directly attributable costs, less trade discounts.
  • Straight-line depreciation = (cost − residual value) ÷ useful life.
  • Reducing balance depreciation = rate × opening carrying amount for the year.
  • Carrying amount = cost (or valuation) − accumulated depreciation.
  • Gain or loss on disposal = proceeds − carrying amount at disposal.
  • A change in estimate is applied from now on; do not restate past years.
  • Revaluation surplus goes to other comprehensive income and equity, not profit or loss.
  • After a revaluation, depreciate the new carrying amount over the remaining life.
  • A register records each asset's cost, location, depreciation and carrying amount, and should be reconciled to the ledger.
  • Land is not depreciated; buildings are.
  • IAS 16 requires disclosure of measurement basis, depreciation methods and lives, and a reconciliation of carrying amounts.

Tangible non-current assets practice questions

Tangible non-current assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tangible non-current assets: frequently asked questions

What counts as a tangible non-current asset?

It is a physical item held for use in the business over more than one period, such as buildings, machinery, vehicles and equipment. It is not held for resale. Intangibles like brands or patents are covered separately.

Is land depreciated under IAS 16?

Land normally has an unlimited life, so it is not depreciated. Buildings on the land are depreciated. If a question gives one combined cost, you need to split it between land and buildings first.

How do I calculate the gain or loss on disposal?

Subtract the carrying amount at the date of disposal from the sale proceeds. A positive result is a gain and a negative result is a loss. Include depreciation up to the disposal date when you find the carrying amount.

Where does a revaluation surplus go?

It is recognised in other comprehensive income and held in equity as a revaluation surplus. It does not go through profit or loss in the normal case. Later depreciation is based on the revalued amount.

How should I approach number entry questions on this chapter?

Do the working on paper in steps, then enter only the final figure in the format asked. Check the units, rounding and whether the answer is a gain or a loss.