I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

F 

Preparing basic financial statements 

 

 

 

3 Disclosure 

notes 

 

 

 

(b)  Draft the following disclosure notes: 

(i) Non-current assets including tangible and intangible assets 

S 

 

 

 

 

 

 

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CHAPTER 8  

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  TANGIBLE NON-CURRENT ASSETS 

 

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1

   Non-current and current assets 

Non-current assets are assets which are bought by the business for continuing use. Tangible non-

current assets are those with physical form.  

A statement of financial position contains both non-current assets and current assets. But what is the 

difference between the two?  

Non-current assets

 are assets which are intended to be used by the business on a continuing basis and 

include both tangible and intangible assets. 

 

Non-current assets are assets that are bought by the business for use in the long term. Non-current 

assets include tangible assets (those with physical form, that are the subject of this chapter) and 

intangible assets (which we will look at in the next chapter). Current assets are assets that will be 

realised, consumed or sold in the normal operating cycle of the business or are assets held primarily for 

trading. Current assets include trade receivables and inventories. 

 

2

   Capital and revenue expenditure 

Capital expenditure is expenditure which forms part of the cost of non-current assets. Revenue 

expenditure is expenditure incurred for the purpose of the trade or to maintain non-current assets. 

2.1 The distinction between capital and revenue expenditure 

In order to tackle the subject of non-current assets, you need to be familiar with an important 

distinction, the distinction between capital and revenue expenditure. 

Capital expenditure

 is expenditure which results in the acquisition of non-current assets, or 

improvements to existing non-current assets. 

(a) 

Capital expenditure is not charged as an expense in the statement of profit or loss, although a 

depreciation or amortisation charge will usually be made to write off the capital expenditure 

 gradually over time. Depreciation and amortisation charges are expenses in the statement of 

profit or loss. 

(b) 

Capital expenditure on non-current assets results in the recognition of a non-current asset in the 

 statement of financial position of the business. 

Revenue expenditure 

is expenditure which is incurred for either of the following reasons. 

(a) 

For the purpose of the trade of the business. This includes expenditure classified as selling and 

 distribution expenses, administration expenses and finance charges. 

(b) 

To maintain the existing earning capacity of non-current assets. 

 

 

These definitions sound a bit confusing, but the principle behind them is fairly straightforward. Think of 

capital expenditure as expenditure that provides long-term benefits (eg a building, item of machinery) 

and revenue expenditure as trading costs relating to the short-term (eg electricity, wages). 

Also, the term 'capital' in capital expenditure should not be confused with the capital invested in a 

business. 

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