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BUILDING – ACCUMULATED DEPRECIATION 

 

 

$      

 

 

$      

Disposal account 

 

6,000 

 

Balance b/d ($3,000  2) 

 

6,000 

 LAND 

– 

COST 

 

 

$      

 

 

$      

Balance b/d 

 

75,000 

 

Disposal account 

 

75,000 

REVALUATION SURPLUS 

 

 

$      

 

 

$      

Retained earnings 

 

105,000 

 

Balance b/d 

 

105,000 

DISPOSAL ACCOUNT 

 

 

$      

 

 

$      

Building – cost 

 

75,000 

 

Cash 

 

200,000 

Land – cost 

 

75,000 

 

Building – acc dep'n 

 

6,000 

/L

 a/c (profit on disposal) 

 

  56,000 

 

 

 

________ 

 

 

206,000 

 

 

206,000 

 

7

   Disclosure in financial statements 

IAS 16 requires a reconciliation of the opening and closing carrying amounts of non-current assets to be 

given in the financial statements. 

The disclosure requirements in IAS 16 are extensive and include both numerical and narrative 

disclosures. 

The financial statements should show a reconciliation of the carrying amount of non-current assets at 

the beginning and end of the period. The reconciliation should show the movement on the non-current 

asset balance and include the following.  

 Additions 

 Disposals 

 

Increases/decreases from revaluations  

 

Reductions in carrying amount  

 Depreciation 

 

Any other movements 

(IAS 16, para. 73) 

The following format is commonly used.  

PROPERTY, PLANT AND EQUIPMENT NOTE 

  

Land 

and 

Plant 

and 

 Total 

buildings 

equipment 

 

$ 

$ 

$ 

Cost or valuation 

 

 

 

At 1 January 20X4 

 50,000 

 40,000 

 10,000 

Revaluation surplus 

 12,000 

 12,000  

– 

Additions in year 

 4,000  

– 

 

4,000 

Disposals in year 

  (1,000) 

          – 

  (1,000) 

At 31 December 20X4 

 65,000 

 52,000 

 13,000 

Depreciation 

 

 

 

At 1 January 20X4 

 16,000 

 10,000 

 6,000 

Charge for year 

 4,000 

 1,000 

 3,000 

Eliminated on disposals 

   (500) 

          – 

  (500) 

At 31 December 20X4 

 19,500 

 11,000 

 8,500 

Carrying amount 

 

 

 

At 31 December 20X4 

 45,500 

 41,000 

 4,500 

At 1 January 20X4 

 34,000 

 30,000 

 4,000 

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PART D: RECORDING TRANSACTIONS AND EVENTS 

 

160

 

As well as the reconciliation above, the financial statements should disclose the following. 

(a)  

An accounting policy note should disclose the measurement bases used for determining the 

amounts at which depreciable assets are stated, along with the other accounting policies. 

(b)   For each class of property, plant and equipment: 

 

Depreciation methods used 

 

Useful lives or the depreciation rates used 

 

Gross amount of depreciable assets and the related accumulated depreciation at the 

beginning and end of the period 

(IAS 16, para. 73) 

(c)  

For revalued assets:  

 

Effective date of the revaluation 

 Whether 

an 

independent valuer was involved 

 

Carrying amount of each class of property, plant and equipment that would have been 

included in the financial statements had the assets been carried at cost less depreciation 

 

Revaluation surplus, indicating the movement for the period and any restrictions on the 

distribution of the balance to shareholders 

(IAS 16, para. 77) 

 

QUESTION 

Carrying amount

 

(a) 

In a statement of financial position prepared in accordance with IAS 16, what does the carrying 

 amount represent? 

(b) 

In a set of financial statements prepared in accordance with IAS 16, is it correct to say that the 

 carrying amount figure in a statement of financial position cannot be greater than the market (net 

 realisable) value of the partially used asset as at the reporting date? Explain your reasons for your 

 answer. 

ANSWER 

(a) 

In simple terms, the carrying amount of an asset is the cost of an asset less the 'accumulated 

depreciation'; that is, all depreciation charged so far. It should be emphasised that the main 

purpose of charging depreciation is to ensure that profits are fairly reported. Thus depreciation is 

concerned with the statement of profit or loss rather than the statement of financial position. In 

consequence, the carrying amount figure in the statement of financial position can be quite 

arbitrary. In particular, it does not necessarily bear any relation to the market value of an asset 

and is of little use for planning and decision making. 

 EXAM FOCUS POINT 

Disclosure notes can and will be tested. You need to learn the disclosures required here. 

The ACCA examining team's report for the January to June 2016 exam session provides the following 

guidance on preparing a disclosure note for tangible non-current assets: 

If you are asked to prepare a disclosure note for tangible non-current assets, then the question will 

specify what information is required. For example, in June 2016 the question specifically stated that 

narrative disclosures were not required. IAS 16 contains a number of disclosure requirements relating 

to the carrying amounts of non-current assets: 

 

The gross amount of each asset heading and its related accumulated depreciation at the 

beginning and end of the period. 

 

A reconciliation of the carrying amount at the beginning and end of the period showing: 

– Additions 

 

– Disposals 

– Revaluation 

 

– Depreciation 

 

The revaluation surplus, indicating the change for the period 

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CHAPTER 8  

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  TANGIBLE NON-CURRENT ASSETS 

 

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An obvious example of the disparity between carrying amount and market value is found in the 

case of buildings, which may be worth more than ten times as much as their carrying amount. 

(b) 

Carrying amount can in some circumstances be higher than market value (net realisable value). 

IAS 16 Property, Plant and Equipment states that the value of an asset cannot be greater than 

its 'recoverable amount'. However, 'recoverable amount' as defined in IAS 16 is the amount 

recoverable from further use. This may be higher than the market value. 

This makes sense if you think of a specialised machine which could not fetch much on the 

 second-hand market but which will produce goods which can be sold at a profit for many years.  

 

 

8

   The asset register 

An asset register is used to record all non-current assets and is an internal check on the accuracy of the 

nominal ledger. 

The asset register lists out all the details of each non-current asset that is owned by the business. Most 

businesses will keep an asset register.  

8.1   Data kept in an asset register 

Data kept in an asset register about each non-current asset usually include the following. 

 

The internal reference number (for physical identification purposes) 

 Manufacturer

'

s serial number (for maintenance purposes) 

 

Description of asset 

 

Location of asset 

 Department 

which 

'

owns

'

 asset 

 

Purchase date (for calculation of depreciation) 

 Cost 

 

Depreciation method and estimated useful life (for calculation of depreciation) 

 

Carrying amount  

8.2   Purpose and function of an asset register 

The asset register is separate from the nominal ledger and contains much more detail about the assets 

owned by the business. Its main use is as an internal control, to make sure that the information about 

non-current assets reported in the nominal ledger (and therefore the financial statements) is accurate 

and correct.   

The asset register can be used as an internal control by regularly reconciling the net carrying amounts of 

all the assets on the asset register with the net carrying amount of non-current assets recorded in the 

nominal ledger. This can be done as follows. 

 

  $ 

Assets at cost (from the non-current asset cost ledger account)  

  X 

Accumulated depreciation (from the ledger account)  

 (X) 

Total of carrying amounts listed in the asset register  

  X 

Any difference should be investigated and corrected. Differences usually arise from computational errors 

or from items being taken out of the asset register with no equivalent change being made in the ledger 

accounts, or vice versa, for instance because: 

 

Assets have been stolen, damaged or scrapped (for nil proceeds) 

 Assets 

are 

obsolete 

 

There are new assets, not yet recorded in the register 

 

There have been enhancements not yet recorded in the register 

 

There are errors in the register 

Periodically, all physical non-current assets should be checked to the current register. This helps to deter 

theft and ensures that all items are accounted for. 

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