1.3 Accounting for Non-Current Assets

2026 Syllabus Objectives — What You Need to Know

By the end of this topic, you should be able to:

1.3.1 Capital and Revenue Income and Expenditure

  • Explain the difference between capital income, revenue income, capital expenditure, and revenue expenditure
  • Explain the effect on profit/loss and asset values when these are treated incorrectly

1.3.2 Changing Asset Values

  • Identify the factors that cause non-current assets to lose value (depreciate)
  • Explain the purpose of accounting for depreciation and the accounting concepts that support it
  • Calculate depreciation using the straight-line method and the reducing balance method
  • Choose the most appropriate method of depreciation for a given asset
  • Measure asset values using the cost model and the revaluation model
  • Prepare ledger accounts and journal entries for: acquiring an asset, revaluing an asset, charging depreciation, and disposing of an asset (including part exchange)
  • Calculate profit or loss when a non-current asset is sold or disposed of
  • Record depreciation in the statement of profit or loss and the statement of financial position

Part 1: Capital and Revenue Income and Expenditure (1.3.1)

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What Is a Non-Current Asset?

Before diving into the topic, it helps to understand what a non-current asset is.

A non-current asset (sometimes called a fixed asset) is something a business owns that:

  • Is used repeatedly over a long period of time (usually more than one year)
  • Is not bought to be resold — it is kept and used by the business

Examples of non-current assets:

  • Machinery used in a factory
  • A delivery van
  • Office computers
  • A building owned by the business
  • Land

Capital Expenditure vs Revenue Expenditure

When a business spends money, the spending falls into one of two categories: capital expenditure or revenue expenditure.

Capital Expenditure

Capital expenditure is money spent on buying, improving, or extending a non-current asset — something that will benefit the business for more than one year.

Examples:

  • Buying a new delivery van
  • Buying a factory machine
  • Extending a building (adding a new wing or floor)
  • Installing a new roof on the business premises (if it significantly improves the building)
  • Legal fees paid when purchasing a property

💡 Think of it this way: capital expenditure creates an asset or adds lasting value to an asset.

Capital expenditure is recorded on the statement of financial position (balance sheet) as an asset — not as an expense in profit or loss.

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