CHAPTER 3

NON CURRENT ASSET

Prepared by: Norliza Ramli

 SUBTOPICS

3.1 Definition of Non-Current Assets

3.2 Determining Cost of Tangible Assets
3.3 Depreciation of Tangible Assets
3.3.1 Causes of Depreciation
3.3.2 Journal Entries
3.3.3 Factor in Computing Depreciation
3.3.4 Depreciation Methods
3.4 Intangible Assets
 3.0 Introduction
ASSET
• What is ASSET?
• 2 categories of ASSET:-
 Non current assets
 Current assets

• What are differences between Non current

assets & Current assets?
3.1 NON CURRENT ASSET

Asset
Property to be used
bought business to
not for generate future
resale cash flow

Can be used more

than 1 year (long
Give future
term asset/fixed benefit to
asset) the business
Classification of Non Current Assets

Tangible

Intangible

Investment
 Tangible non current asset
Example:-
*Land
*Building
*Furniture
Have a
physical Can see
*Machinery
substance and and touch
*Motor vehicle the benefit is
*Computer, known
laptop
*Office
equipment
Intangible Non Current Assets

Has no Cannot be seen

physical and touch,
substance sometimes
people do not
and hard to know the
be evaluate benefit
 Investment
Allocating the resources (invest
usually money), with the
expectation of generating an
income or profit in the future. 

OR Using money to purchase

assets in the hope that the asset
will generate income over time or
appreciate over time.

Example:-
*long term & short
term investment
*Fixed deposit
 SELF TEST!!
Name of Asset
1. Washing machine
2. Fixed deposit in ASB TANGIBLE
3. Table and chair Answer:
NO.
4. “ I’m lovin it ”
5. Car
6. Landed house
7. Forklift INTANGIBLE
Answer:
8. Pizza hut NO.
9. Design of product
10. Investment
11. Property and equipment
INVESTMENT
12. Freehold building Answer:
NO.
2.2 Determining COST of Non Current
Asset (NCA)

In order to determine the

WHAT?? cost of NCA, the business
should know the:-
How much the • Original @ purchase
actual value of NCA price / cost of NCA.
to be recorded in • all expenses need to
Financial acquire the asset and
make it ready for its
Statement. intended use.
 Formula

Cost of asset =
Purchase/cost price of
NCA
+
ALL expenses incurred
to acquire NCA
 Example of other cost on NCA
Land Building
*The purchase price *The purchase price
*Closing costs – *Legal fees
title & attorney’s fees *tittle insurance
*real estate broker’s
*Real estate brokers’
commission
commission
*Renovation and replacing
or repairing the roof, floors,
*Accrued property electrical wiring and
taxes plumbing.
*Other liens on the *contract price + payments
for architects’ fees,
land assumed by the
purchaser *building permits
*excavation costs
Equipment
*The purchase price
*Sales tax
*Freight charges
*Insurance during transit
paid by the purchasers
*Expenditures in assembling,
installing and testing the unit
***Cost represent annual
recurring expenditures and do
not benefit future period is
treated, such as motor vehicle
licenses and accident insurance
as EXPENSES when it incurred.
 A notes to remember!!

Other cost (1st time incurred/once a time, NOT

annually/monthly):-
*Installation & testing & assembling cost (software,
windows)
*Freight cost/transportation
charges/delivery/shipping/carriage inwards
*Major renovation
*Sales tax, Services tax
*Legal fees, attorney’s fees, title fees, architects’ fees,
*lawyers fees
*Real estate commission, brokers commission
*Excavation cost
*Insurance during transit, insurance on purchase
*Import duties, stamp duties
*Painting
*painting and lettering
 SELF TEST!

1. Purchase price = RM44,500

Installation & Testing = RM890
Delivery charges = RM300
Tax = RM120
Calculate how much the cost of machinery?

2. Cost price = RM155,000

Legal fees = RM5,750
Title insurance = RM3,000
Brokers commission = RM5,000
Annual insurance = RM1,110
Calculate how much the actual cost of building?

3. Nusa Rara Sdn Bhd purchased a Van at cost of RM30,000, plus with the other cost such as accident
insurance RM1,500, sales tax RM3,000, motor vehicle license RM300 as well as painting and lettering
RM600.
Calculate the cost of the Van?
4. Office equipment RM
Purchase price 29,780
Insurance on purchase 800
Import duties 455
Freight cost 760

How much the cost of office equipment?

2.3 Depreciation on Non Current Asset(tangible)

All non-current assets (NCA) Loss of using the Non-

EXCEPT for land must be Current Assets and treated
depreciated for each as an Expense to the
accounting period company
Depreciation is the process of
allocating cost of plant asset to
expense over its useful life or
service life in a rational and
systematic manner2.3.1 Causes of Depreciation:
(annually)
2.3.2 Journal entries: *Wear and tear
DR Depreciation expenses *Technological obsolescence
CR Accumulated *Physical factor
depreciation *Defluxion of time (time factor)
2.3.3 Factor to be considered in computation of depreciation

COST
USEFUL LIFE
All costs
expenditures
Estimated or SALVAGE
the expected VALUE
necessary in productive life.
acquiring the Estimated
assets and value of asset
making it ready at the end of
for intended useful life.
use.
 Straight line

2.3.4 Method of Depreciation

Units of
Declining
activity/production
balance
 FORMULA:
Depreciation expense per year :
Cost – Scrap/ Salvage/ Residual Value
Useful Life
@
Cost x %
Depreciable rate :
Depreciation expense X 100%
Amount of Depreciable cost*
depreciation charges
are constant/fixed and Based on Cost of
will be same for each Asset
accounting period

Straight
line
method
 Straight Line Method

1. Cost of furniture RM10,250.

Useful life = 5 years
Salvage value = RM1,200
Calculate the amount of depreciation expenses for furniture.
Answer:
= RM10,250 - RM1,200
5 years
= RM1,810

2. Didy Bhd purchased a delivery truck at a cost of RM55,000. The value of

truck at the end of its useful life is RM4,500. Compute annual depreciation
expense for the truck if rate of depreciation charge is 20% per annum.
Answer:
= (RM55,000 – RM4,500) x 20%
= RM10,100
 Amount of depreciation charged
are different and will become
smaller than previous year.
Charge for depreciation in early
year is higher than the previous
year.

A common Depreciation rate

declining balance Declining remains constants
rate is double the balance from year to year,
straight line rate but the book value
method to which the rate is
called as Double-
declining balance applied declines
method. each year.

Formula:
Depreciation expense per year :
(Cost – Accumulated Depreciation ) X Depreciable rate
Double-declining balance method :
Depreciable rate is calculate using straight line method
But the rate must be Double rate (200%)
 Declining Balance Method

Q1. Delivery van (at cost) = RM50,000.

Accumulated depreciation = RM4,300
Depreciation rate = 5% per annum
Calculate the depreciation expense for delivery
van using declining balance method.

Answer:
  = (RM50,000 – RM4,300) x 5%
= RM2,285
 Declining Balance Method

Q2. On 2018, Lailatul company purchased a furniture & fittings

worth RM60,000. The depreciation rate is 10% per annum using
declining balance method. Calculate the depreciation expense for
the first and second year.

Answer:
1st year = (RM60,000 – RM0) x 10%
= RM6,000.
2nd years = (RM60,000 – RM6,000) x 10%
= RM5,400.
 Con’t….

Double Declining Balance Method

Q3. Nana Sdn Bhd purchased a machine worth RM20,000. Residual value of machine is
RM2,000. The depreciation rate using straight line method is 10% per year. Calculate
the depreciation expenses if the company use the double declining balance method.

Answer:-
Step 1: find depreciation expenses using SLM.
= (RM20,000 - RM2,000) x 10%
= RM1,800
Step 2: find the rate % for double declining
= RM1,800
(RM20,000 - RM2,000) X 200
= 20%
Step 3: find depreciation expenses using double rate %
= 20% x RM20,000
= RM4,000
 Useful life is
expressed in
terms of the total
units of
production/use
expected from the
asset

It is suitable to be
used to factory
Units of Production can be
machinery, delivery activity measured in units
equipment (miles of output or in
driven) and airplanes method machine hours
(hours in use)

Formula:
Depreciation expense per year:
Cost – Scrap/ Salvage/ Residual Value x Units of activity
Total unit of activity during the year
 Units Of Activity
Q1. The cost of paddy machine was RM70,000 with expected scrap value
RM5,000. The maximum capacity of production for machine was
300,000 units of paddy. Calculate the depreciation expense for the
paddy machine, if 6,000 and 5,000 units of paddy were produced for
the 1st and 2nd years of its consumption.

Answer:-

Year 1 = RM70,000 – RM5,000 x 6,000

300,000 units
= RM1,300.

Year 2 = RM70,000 – RM5,000 x 5,000

300,000 units
= RM1,083.33@ RM1,083.
2.4 Intangible Asset
• Asset that can’t be see and touch.
• Are rights, privileges and competitive advantages that result from the
ownership of long lived assets that do not have physical substance.
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specific services or use certain to reproduce and sell an artistic or
trademarks or trade names. published work.
 SELF TEST!
1. Good relationship with customer
2. A new version of Toyota vios
3. Right to produce film
4. KFC at taman midah
5. Unique design of Art Building at Mexico
6. Speedmart’s tagline – dekat lagi murah
7. Strategic business location
8. A license to start open new a Ariani boutique
9. writer of “sehijau warna daun”
10. new invention of Samsung galaxy tab.
11. logo of top drinking water “coca cola”
 hyperlink
• Depreciable cost : value of asset after deducted the
amount of salvage value. (Cost – Salvage value)
• Book value: cost – accumulated depreciation
• Double declining balance method:-
 the amount of NCA is double reduced.
 step in calculating depreciation expenses using double
declining balance rate;
Step 1: Calculate the amount of depreciation expense
using SLM (RM)
Step 2: Find the double rate (%)
Formula- depreciation expenses (step 1) X 200
depreciable cost
Step 3: % (step 2) x Cost (RM)