Unit 3 Chapter 5

Schedual of NCA
auditors reports
Directors' responsibilities
Accounting standards
Limitations

?
• Created by: Melonball
• Created on: 29-05-14 17:47

Schedule of Non current assets

This reconciles the Net Book Value of the assets at the start of the year with the changes that have happened during the year such as disposals and purchases.

A really simple format is this:

Non current assets: propert, plant and equipment.
£
Net book value at the start of the year          3,832,000
LESS disposals during the year                   (381,000)
Depreciation for the year                              (589,000)
---------------
Net book value at the end of the year           3,584,000

The more common and bigger ones have 2 sections: Cost and Depreciation.
These changes give the Net book value at the end of the year after all the changes have been made.

1 of 6

Schedule of Non current assets

The first half is the cost section of the schedule. - 30th sept 2013

land and buildings    plant  and machinery   fixtures and fittings
Cost                    £                            £                               £

as at start       500,000                   150,000                      100,000
disposals                                                                       (20,000)
revaluation      120,000
-----------                   ------------                     -----------
as at end        620,000                   200,000                     110,000

Plant and machinery have a NBV of 78,400 and is depreciated using the reduced balance method at 25%.
Land and buildings are depreciated at 2% using straight line.
Fixtures and fittings are depreciated at 15% using straight line.
The fixtures that we sold were bought on the 1st oct 2011 and were sold during this year for 12,000.

2 of 6

Schedule of Non current assets

The second half is the depreciation.

With the example given,  we will start with Plant and machinery. The net book value was 78400 so we add the purchases nca of 50,000 to get 128400 x 25% = 32100. This will be the amount of depreciation charge for the year.

The charge for the year for fixtures and fittings is simply: 110,000 x 15% = 16500
In this column, an asset was sold costing 20,000. We need to take out the cost and the provision for depreciation out of the accounts.
Looking at the information, we work out the provision is for 2 years.
cost x % x 2 will give us the charge, so     20,000 x 15% =  3000 x 2 = 6000.
The 6000 depreciation will be eliminated on disposal.

Land and buildings: 620,000 x 2% = 12,400.

The end of the section is  Net book value at the end of the year.

3 of 6

Accounting standards

Functions:

• Provide guidance for people preparing accounts in situations where there is alternative treatments for example depreciation.
• Ensure that similar items are dealt with in similar ways in different companies
• Help ensure comparability over time
• Make sure people can rely on the information being "true and fair" to make decisions like should we lend the business money? Invest? etc
4 of 6

Directors' responsibilities and Auditors

• The directors of a limited company must ensure that the provisions of the Companies act (1985) are followed.
• Must prepare a director's report. It must also be sent to shareholders along with the accounts. This allows them to see if the company has good finances or if it looks like if the company is expanding.
• They are responsible for preparing the financial statements

Auditors - an independant firm who check the accounts

•  They can discuss changes with the directors if they think the company is not giving a true and fair view.

They must also make a report...

• Make sure a true and fair view is given of the company's affairs
• Make sure the information given in the directors report is consistant with the financial statements
5 of 6

Limitations of published limited accounts

• Produced annually, the company can incurr a lot of changed within a year and this can seem risky for invetors as it is a long period of time.
• Reports on what has happened = historical data. It cannot help see what will happen in the future.
• The framework shows they dont have to dislose additional information. This means the investors cant actually see where the business is spending its money etc, risky.
6 of 6