Acca financial Accounting (FA) Study Text ac ca (FA)


What amounts should be capitalised as ‘Land and buildings’ and



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What amounts should be capitalised as ‘Land and buildings’ and 

’Motor vehicles’? 

 

Land and buildings 



Motor vehicles 

A 260,000  116,390 

B 250,000  116,870 

C 250,300  116,390 

D 260,300  116,870 

 

6 Depreciation 

 



IAS 16 Property Plant and Equipment defines depreciation as 

‘the 

systematic allocation of the depreciable amount of an asset over its 

useful life'

 (IAS 16 para 6). 

 

In simple terms, depreciation spreads the cost of the asset over the period 



in which it will be used. 

 



Depreciation matches the cost of using a non

­

current asset to the 



revenues generated by that asset over its useful life. 

 

 




 

Non-current assets: acquisition and depreciation 

128

 

KAPLAN PUBLISHING



 

 



Depreciation must also be matched to the pattern of use of the asset. 

According to IAS 16, the estimated useful life of items of property, plant 

and equipment must be regularly reviewed and may be changed if the 

method no longer matches the usage of the asset. 

 

This is achieved by recording a depreciation charge each year, the effect 



of which is twofold (‘the dual effect’): 

– 

reduce the statement of financial position value of the non



­

current 


asset by accumulated depreciation to reflect the wearing out, and 

– 

record the depreciation charge as an expense in the statement of 



profit or loss to match to the revenue generated by the non

­

current 



asset. 

 

 




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