N4 Introductory Financial Accounting | Student Book 4.1.4 Capital


The IASB Conceptual Framework identifies two concepts of capital: • A financial concept of capital is one whereby capital is linked to the net assets or equity of a company. Under a financial concept of capital, such as invested money or invested purchasing power, the net assets or equity of the entity. The financial concept of capital is adopted by most entities.


• A physical concept of capital is where capital is linked to the productive capacity of the entity. Under a physical concept of capital, such as operating capability, the productive capacity of the entity based on, for example, units of output per day.


4.1.5 Acquisition of non-current assets Non-current assets


An entity classifies a non-current asset as held-for-sale if its carrying amount will be recovered mainly through selling the asset rather than through usage. These are bought for generating income and not for resale. Remains with the business for longer than one financial year.


Examples: Land and buildings


Equipment, furniture & fittings Vehicles


Fixed deposits • All the premises bought for running the business


• All the items which are needed to run the business, e.g. computers, till register, chairs and tables.


• All modes of transport owned by the business for use of the business.


• A fixed deposit involves locking a particular amount of money for a certain time period at a much higher rate of interest than being given on a savings account .


Practical example


An entity has agreed in a directors’ meeting to sell a building and has tentatively started looking for a buyer for the building. The price of the building has been fixed at R4m and a surveyor has valued the building based on market prices at R3.6m. The entity will continue to use the building until another building has been found with equivalent facilities, and in a suitable location for the office staff, who will not be relocated until the new building has been found.


Additionally, the entity is planning to sell part of its business and has actively marketed the business at a fair price but, before the business can be sold, government approval is required, and any sale requires government approval. This means that the sale time is difficult to determine and it may take longer than one year to sell the disposal group.


es government appr Solution


The building will not be classified as held-for-sale as it is not available for immediate sale because, until new premises have been found, the office staff will remain in the existing building. Also, the directors have only tentatively started looking for a buyer, which may indicate that the entity is not committed to the sale. Additionally, the price being asked for the building is above the market price and is not reasonable compared to that price. It is unlikely that the entity will sell the building for that price.


The disposal group, however, would be classified as held-for-sale because the delay is caused by events or circumstances beyond the entity’s control, and there is evidence that the entity is committed to selling the disposal group.


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