Capital Assets - Used greater than 1 year
FA can now be reevaluated upwards as per IFRS
LCM rule was there earlier
historical book value
net realized book value - used when we are planning to sell an asset
equals selling price - selling cost
replacement cost
Value in use - NPV of future cash flow the asset will generate in future
---------------------------------------------------------------------------------------decomponentization of assets
---------------------------------------------------------------------------------------capital cost are broken down into depreciation which impact NI
or
some parts of coapital cost is not booked in B/S but are considered as expense
ie Expense vs Capitalization
Capitalization Costs
purchase price
architecure design
engineering fees
taxes
inbound delivery (freight-in)
transport insurance cost
duties
testings
installation costs
legal fees for the arrangement or acquiring of the asset
interest until asset is up and strat running
ways to depreciate
1 straight line
2 accelerated
3 units of usage / output
acceptable for tax purposes
tax purposes for mining / natural resource industry
Straight Line
=
(Capital cost - residual cost ) / estimated useful life
accelerated
=
capital cost * rate
%
book value will never be absolute zero, though it can become infinitesimal small
P8-17
a)
Dr
mining property
equipment
building
cash
Cr
225000000
115000000
35000000
375000000
b)
mining property
residual value
estimated useful life
purchased on
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
225000000
0
10 years
1-Jul-13
Book Value
depreciation
accumulated
Book Value end
beg of year
expense
depreciation
of year
225000000
22500000
22500000
202500000
202500000
22500000
45000000
180000000
180000000
22500000
67500000
157500000
157500000
22500000
90000000
135000000
135000000
22500000
112500000
112500000
112500000
22500000
135000000
90000000
90000000
22500000
157500000
67500000
67500000
22500000
180000000
45000000
45000000
22500000
202500000
22500000
22500000
22500000
225000000
0
115000000
10500000
10 years
earlier year, more income, as there is less expense, however in later years it has lesser income than declining bala
g / natural resource industry
depreciation - used for tangible assets
amortization - used for intangible assets
deplection - used in natural resouce based industry eg mining
declining balance continuity
there is no impact of Salvage value in this method
mining property
225000000
residual value
0
estimated useful life
10 years
purchased on
1-Jul-13
year
30-Jun-13
30-Jun-14
30-Jun-15
30-Jun-16
30-Jun-17
30-Jun-18
30-Jun-19
30-Jun-20
30-Jun-21
30-Jun-22
Equipment
residual value
estimated useful life
Book Value
depreciation accumulated Book Value
beg of year
expense
depreciation end of year
225000000
45000000
45000000
180000000
180000000
36000000
81000000
144000000
144000000
28800000
109800000
115200000
115200000
23040000
132840000
92160000
92160000
18432000
151272000
73728000
73728000
14745600
166017600
58982400
58982400
11796480
177814080
47185920
47185920
9437184
187251264
37748736
37748736
7549747
194801011
30198989
30198989
6039798
200840809
24159191
115000000
10500000
10 years
accumulate
d
depreciatio Book Value
n
end of year
5700000 109300000
17100000 97900000
29766667 85233333
42433333 72566667
55100000 59900000
67766667 47233333
80433333 34566667
93100000 21900000
102600000 12400000
104500000 10500000
35000000
0
10 years
825000
1-Jul-13
Book Value
beg of year
35000000
33090909
29272727
25030303
20787879
16545455
12303030
8060606.1
3818181.8
636363.64