1. UNIT 5: Non Current Assets (Group 2) - Acquisition

2. NON CURRENT ASSETS (GROUP 2) INCLUDE: -SUBGROUP 20: “Intangible Assets” -SUBGROUP 21: “Property, Plant and Equipment” -SUBGROUP 22: “Investment Property”

3. Subgroup 21 comprises tangible assets, moveable and immovable property, used permanently (+ 1 year) in producing goods or services, and not intended for sale. 1. SUBGROUP 21: “PROPERTY, PLANT AND EQUIPMENT” 210. Land and natural resources 211. Buildings 212. Technical installations 213. Machinery 214. Equipment 215. Other installations 216. Furniture 217. Information technology equipment 218. Motor vehicles 219. Other property, plant and equipment

4. Acquisition Value The purchase price or production cost shall include: -Indirect taxes when these are not directly recoverable from taxation authorities. (Examples: “Vehicle Registration Tax” included, “VAT” not included) -Costs directly attributable to bringing the asset into operating condition: transport, insurance, installation, etc. A Corporation purchases on credit a vehicle by 20.000 €. Registration expenses: 470 €. Registration Tax: 1.400 €. (Amounts are all VAT not included) 218 472 173/523 Motor vehicles (20.000+470+1.400 €) Input VAT (21% x (20.000+470)) Non-current / Current Payables to suppliers of fixed assets 21.870 4.298,7 26.168,7 173/523. Non-current / Current Payables to suppliers of fixed assets – LIABILITY

5. Corporation FHT purchases a building by 300.000 € (VAT 21% not included) from which 180.000 € correspond to land. It is all paid through banks. 210 211 472 572 Land and Natural Resources Buildings Input VAT (21% x 300.000) Banks and…, current accounts, euros 180.000 120.000 63.000 363.000 Corporation DRG purchases tools and other material by 4.500 € (VAT 21% not included). Supplier includes in the invoice a discount of 120 €. It is all paid through banks. 214 472 572 Equipment (4.500 – 120 €) Input VAT (21% x 4.380) Banks and…, current accounts, euros 4.380 919,8 5.299.8

6. Subgroup 20 comprises assets without physical substance that can be assigned an economic value. They will stay in the company permanently (+ 1 year), and are not intended for sale. 200. Research 201. Development 202. Administrative concessions 203. Industrial property 204. Goodwill 205. Leaseholds 206. Computer software 209. Advances for intangible assets 2. SUBGROUP 20: “INTANGIBLE ASSETS”

7. 200. RESEARCH: Original and planned investigation attempting to discover new knowledge in scientific and/or technical areas. 201. DEVELOPMENT: Specific application of research to a particular plan or design for the production of new or improved materials, products, methods or processes. 200. Research 201. Development Many times, they both can involve work outsourced to other companies or to universities or other scientific or technological research institutes.

8. A Business hires University services during year 20X0 to develop a production process: -University invoices on credit 20.000€ (VAT not included). -At the end of the year, the business considers the project will be successful and will generate earnings. -During year 20X1, the University ends its services invoicing on credit 12.000€ (VAT not included). -Nevertheless, the business gives up the project as it doesn’t obtain any profit from it.

9. - When arising evidence of success: 31-12-20X0 201 730 Development Work carried out by the company for Intangible Assets 20.000 201 Development - ASSET (The expense is “capitalised” or “made an asset”) Note: VAT is not capitalised!!! 730 Work carried out by the company for Intangible A. - INCOME (It offsets expense 620 “R&D Expenses…” from previous accounting entry – There will be no effect on account 129 “Profit and Loss for the period” in 20X0) 620 472 410 Research and Development expenses for the period Input VAT (21% x 20.000) Payables for the rendering of services 20.000 4.200 24.200 - When receiving the invoices: In the period they incurred, 20X0 620 Research and Development exp. for the period - EXPENSE

10. - When doubts as to the technical success are foreseen: 20X1 670 201 Losses on intangible assets Development 20.000 670 Losses on intangible assets - EXPENSE (The amounts capitalised must be recognised directly in losses – They will reduce account 129 in 20X1) Should it have continued successful, account 201 “Development” would not have disappeared and would have to be amortised over a USEFUL LIFE OF 5 YEARS 620 472 410 Research and Development expenses for the period Input VAT (21% x 12.000) Payables for the rendering of services 12.000 2.520 14.520 - When receiving 2nd invoice: In the period they incurred, 20X1 This time they won’t be capitalised later on, as there won’t be evidence of success anymore – It ‘ll reduce account 129 in 20X1

11. Development expenditure capitalised when a patent or similar right is obtained, including expenses incurred on registering industrial property, shall be accounted for as industrial property 203. Industrial Property -Acquired from third parties or produced internally -Including website development costs -Not including software maintenance costs 206. Computer Software

12. Subgroup 22 comprises non-current real estate assets (lands or buildings) held: -To earn rental income or, -For capital appreciation: intended for sale (BUT INDEPENDENTLY OF THE ORDINARY COURSE OF BUSINESS) 220. Investments in land and natural resources 221. Investments in buildings They are to stay in the company permanently (+ 1 year) They are not held: -To use in the production or supply of goods and services, or for administration purposes or, -For sale in the ordinary course of business 3. SUBGROUP 22: “INVESTMENT PROPERTY”

13. Corporation GTR purchases a building by 200.000 € (VAT not included) on credit to be paid in 3 years. The building will be held for capital appreciation. 20% of its value belongs to the land. 80% to the construction. 220 221 472 173 Investments in land and nat re. (20% 200.000) Investments in buildings (80% 200.000) Input VAT (21% 200.000) Non-current payables to suppliers of fixed assets 40.000 160.000 42.000 242.000 210 211 220 221 Land and natural resources Buildings Investments in land and nat. resources Investments in buildings 40.000 160.000 40.000 160.000 3 months later it is decided to use the building as the Business’ premises.