Non-current assets
BACKGROUND
We are providing you with the balance sheet of a Spanish company at the end of the year. The company carried out its accounting according to the PGC 2007. You have to analyse each of the items and specify which group of the Chart of Accounts they belong to and the specific coding that corresponds to it according to the Chart of Accounts of the General Accounting Plan to each entry.
Once all the accounts have been coded, create the closing entry for the company.
ASSETS LIABILITIES
Non-current assets Net equity
Intangible fixed assets: Equity capital:
Industrial Propriety 40.500 € Capital Social 3.000.000 €
Cumulative depreciation II -5.000 € Legal reserve 348.180 €
Tangible fixed assets: Profit and Loss 158.810 €
Constructions 3.900.000 €
ICT Equipment. 9.000 € Non-current liability
Furniture 70.000 € Long-term debts
Transport 35.000 € Long-term debt to institutions. 710.000 €
Cumulative depreciation IM -122.000 €
Current liability
Current Asset Short-term debts
Stock: Short-term debts to institutions. 38.000 €
Goods 62.000 € Suppliers 200.000 €
Impairment loses -1.150 € Creditors 3.560 €
Debtors:
Clients 236.200 €
Short-Term investments
Short-term investments (shares) 9.000 €
Liquidity:
Banks 225.000 €
TOTAL ASSETS 4.458.550 € TOTAL LIABILITIES 4.458.550 €
1) Based on the International Accounting Standards, solve the following exercises:
IAS 16. Fixed Assets. We are a graphic arts company, and at the beginning of 2016, we acquired a new printer. The price of this printer was 25,000 euros. The additional expenses of the purchase were as follows:
– Installation and assembly: 3.000 euros.
– Transportation and delivery: 1.150 euros.
All operations have a 21% VAT (not included), and the payment of the amounts is made by bank check.
During January, the assembly and installation of the new printer takes place, which is in perfect working condition from February the 1st.
The useful life expectancy of the printer is estimated at 10 years, and its amortisation will be carried out following the linear method. Additionally, at the end of its useful life, the company will have to face the costs of dismantling and rehabilitation of the place. Estimating said costs in 5,000 euros. Besides, said machinery requires specialised weekly maintenance, amounting to 250 euros per month.
Calculate:
– The initial cost of the acquisition.
– The amortization fees.
– The costs derived from daily maintenance.
IAS 36. Impairment of assets. We are a photo studio, and due to the increase in work and staff, we have had to acquire three new cameras and accessories. The acquisition occurred in January 2018. The prices of the cameras are as follows:
– Camera 1: 1.750 euros
– Camera 2: 3.500 euros
– Camera 3: 1.950 euros
– Accessories: 4.550 euros
Calculate:
– The impairment loss of the asset at the end of 2020, taking into account that the recoverable amount of the acquisitions is:
o Camera 1: 575 euros
o Camera 2: 1.500 euros
o Camera 3: 750 euros
o Accessories: 2.200 euros
IAS 38. Intangible Assets. On March 1, 2016, we obtained a patent for 7,500 euros.
At the close of the fiscal year, on December 31, 2016, the fair value of the patent was 9,000 euros.
As of December 31, 2017, the fair value of the patent stands at 8,000 euros.
The criterion we use for valuation after the initial recognition of the asset is the revaluation model.
Formulate:
‒ Make the accounting entries corresponding to the acquisition of the asset and at each accounting close.
Sample Solution
According to the International Accounting Standards (IAS) 16, fixed assets are non-current assets that are held for use in the production or supply of goods and services, for rental to others or for administrative purposes. Fixed assets, such as a printer in this case, should be recorded at their cost including all costs necessary to bring them from their existing condition into the condition ready for use. These costs include purchase price and any additional expenses related to purchase such as transportation and installation.
In this instance, since we have acquired a new printer with a purchase price of €25,000 and an additional expense of €3,000 for installation & assembly; our total cost of acquisition would be €28,000 which should be recognized as an asset under IAS 16. This amount can then be accumulated over its useful life (as per depreciation policy), with periodic write offs taken accordingly until it is fully depreciated and removed from company\’s balance sheet.
The recognition criteria set out by IAS 16 requires that an asset meets the following conditions: (1) future economic benefits either from using or disposing the asset are expected; (2) cost incurred must be measurable reliably and (3) future economic benefit must exceed initial expenditure. Since all these conditions were met in this example it is safe to say that our new printer qualifies as a fixed asset under IAS 16 standard.
