Illustrative Example in Terms of NCA and NCL

In Above Example , information at 2(c), 2A, 4(a), 4(e) and 4(f) refer to outcomes in the management of non-current assets and non-current liabilities. These aspects were commented (Note on Loss on sale . . .), (first three items). Changes in NCA like patents, goodwill and other intangible assets are due to their amortisation  or acquisition, indicated by a decrease or increase, respectively, in their balances between consecutive years' statements. Changes in other NCA, particularly' plant and equipment, should be analysed-through : their accumulated depreciation, gain or loss (in the P & L Alc) in their respect, due to sale, and other information on their acquisition and retirement (to be textually reported in continuation of the financial statements). Changes in NCL accounts will be due to a fresh issue of shares and debentures (and loans - secured or unsecured - takentpaid off) (excluding bonus shares, conversion from debentures to bonds, etc.). Examples illustrate the working out of these instances.

Example
Computations in Respect of Changes in NCA

The following information is extracted of a company comparatively between two consecutive BS. Additional information as under is also available.

Additional Information
One of the equipment on hand (ATX 1). originally acquired at Rs. 85,000 was sold at the end of the year for Rs. 30,000, when the accumulated depreciation on it was Rs. 45,000, and the loss on sale was charged against profit for the year.A new plant (ATX 2) was purchased in replacement of (ATX 1) at a cost of Rs. 1,08,000 during the year.

Analyse the information and prepare the necessary statements.

Solution

(a) ATX 1 was scrapped and hence, SCRAPPED ASSETS ACCOUNT will be prepared as under.

Scrapped Assets Account

(b) Increase in plant and equipment between year ends is Rs. 1,32,000 of which ATX 1 provides a diminishing of Rs. 85,000 and ATX 2 provides an increase of Rs. 1,08,000. Hence, other equipment must have also been purchased at a cost value of (1,32,000 + 85,000 - 1,08,000) = 1,09,000 during the year 1997-1998.There is an increase of Rs. 35,000 in depreciation. Also accumulated depreciation on the scrapped asset was Rs. 45,000. Hence, depreciation charged on other previous equipment and ATX 2, during the year, must have been
Rs. 80,000 by balancing figure.

Accumulated Depreciation Account

FIXED ASSETS ACCOUNT
(Plant and Equipment)

It may be appreciated that information on other equipment purchased (other than ATX 2) is revealed ONLY by this analysis and not by the extracts of the BS (even when supplemented with the additional information as given).All the three tables show the flow of funds during the year.

The following points must be appreciated :

(a) Purchase of assets for a total of Rs. 2,17,000 is outflow.

(b) Depreciation of Rs. 80,000 will be charged in P & L A/c and must be added back to work out the operational flow.

(c) Sale proceeds of Rs. 30,000 in inflow.

(d) Loss on sale of Rs. 10,000 shall be excluded form profidloss in computing for WC changes.