Until this point, everything has been straightforward. You’re now ready to move to the next level, and the following worked exercise shows how tangible non current assets are accounted for. Though there are many standards, IAS 16 Property, Plant and Equipment is a good vehicle to allow us to discuss in more detail the prudence and accruals conventions.
The previous exercise concluded at the end of week 2. Let us pick up the exercise at the start of week 3. The closing position looked like this (ie opening statement of financial position as of first day of week 3):
|
Mobius Inc |
|
|
Summarized Statement of Financial Position |
|
|
As at the start of week 3 |
|
|
Assets |
|
|
Non current assets |
|
|
Computer |
500.00 |
|
Printer/scanner |
100.00 |
|
Current assets |
|
|
Cash at bank |
1,450.00 |
|
Inventories |
|
|
Raw materials |
0.00 |
|
Finished goods |
533.33 |
|
Trade receivables – amounts owed by customers |
900.00 |
|
Liabilities |
|
|
Loan from friend |
(500.00) |
|
Trade payables – amounts owed to suppliers |
(800.00) |
|
Net assets |
2,183.33 |
|
Shareholder’s funds (capital and reserves) |
|
|
Capital |
1,000.00 |
|
Retained profits (weeks 1 & 2) |
1,183.33 |
|
Shareholder’s funds |
2,183.33 |
The following information is relevant to weeks 3 and 4:
Tangible non current assets
(a) By the end of week 4, which marks the conclusion to your first full month’s trading, you have noticed signs of wear and tear appearing on both of your tangible non current assets – the printer/scanner and the computer. You believe that the printer will continue effectively for 20 months, at which point it will be scrapped. The computer is unlikely to be usable for business purposes after 40 months but you know a friend will buy it off you at that time for $100.
(b) On the first day of week 3 you decide to buy a new motor vehicle which will be used exclusively for business purposes. The useful economic life of the motor vehicle is estimated to be five years, at which stage the terminal value would be $0. The invoice from the supplier showed the following costs:
|
$ |
|
|
Motor vehicle |
19,500 |
|
Delivery charge |
500 |
|
Additional extras: |
|
|
Non standard black matt paint job |
1,000 |
|
Convertible roof function |
2,000 |
|
Tank of petrol |
150 |
|
Road tax (for the year) |
200 |
|
Total |
23,350 |
You take out a loan with a coupon rate of 10 per cent for the full amount from your bank to finance the purchase. The interest is paid quarterly in arrears. The principal (ie capital amount borrowed) is due to be repaid in full in five years’ time.