Other Non-current Assets
Study Unit 11 covered the tangible non-current assets — property, plant and equipment that you can see and touch. This study unit covers the other two categories: intangible assets (no physical substance) and other financial assets (cash investments and investments in shares).
1. Non-current asset categories
Non-current assets are assets with an expected useful life of more than one year. They are divided into three broad categories:
2. Intangible assets
According to IAS 38, an intangible asset is an identifiable, non-monetary asset without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. It must be controlled by the entity as a result of past events, and future economic benefits must be expected to flow from it.
▸ Patents — exclusive right to manufacture or use an invention
▸ Trademarks / brand names — exclusive right to use a name or logo
▸ Goodwill — excess amount paid for a business above the fair value of its net assets
▸ Copyrights — exclusive right to reproduce creative works
▸ Computer software licences
▸ Franchises — right to operate under another entity’s brand
Intangible assets that have a finite useful life are subject to amortisation — the systematic allocation of their cost over that life. Amortisation is the intangible asset equivalent of depreciation for PPE.
Both spread the cost of an asset over its useful life. Depreciation applies to tangible PPE. Amortisation applies to intangible assets. The accounting treatment is identical — an amortisation expense is charged each year and accumulated in an Accumulated amortisation account (contra-asset). Land is not depreciated. Some intangibles (e.g. goodwill with indefinite life) are not amortised but tested annually for impairment instead.
3. Financial instruments
A financial instrument is any contract that gives rise to a financial asset in one entity and a financial liability or equity instrument in another entity. In FAC1502, the focus is on financial assets — specifically cash investments and investments in shares.
Dr Cash investment / Investment in shares
Cr Bank
4. Cash investments
Entities invest available cash to earn the best possible return. Cash investments include savings accounts, call deposits and fixed deposits. They earn interest at a fixed rate or one that doesn’t change often.
Why entities make cash investments
- To earn the highest possible yield on temporarily available cash
- To park cash that is needed only on a specific future date
- Fixed deposits typically earn higher interest than a cheque account
- Safer and more certain return than equity investments
Interest income calculation
Example: R50 000 invested at 8% per annum for 6 months
Interest = R50 000 × 8/100 × 6/12 = R2 000
5. Investments in shares
An entity may invest in the ordinary shares of another company. The return on a share investment is called a dividend. Unlike interest, dividends are only paid if the company declares a dividend — they are not guaranteed.
How dividends are calculated
Dividends are declared in one of two ways:
- As a percentage of the nominal value of the shares — e.g. a 15% dividend on shares with a nominal value of R2 each = R0,30 per share
- As cents per share — e.g. 25 cents per share on 10 000 shares = R2 500
6. Cash investments vs shares — comparison
| Feature | Cash investments | Investments in shares |
|---|---|---|
| Nature | Fixed deposits, savings accounts, call deposits | Ordinary shares in a company |
| Return | Interest — at a fixed or semi-fixed rate | Dividends — only if declared by the company |
| Certainty | High — rate is agreed upfront | Variable — depends on profitability and board decision |
| Risk | Lower — capital and return generally guaranteed | Higher — share value can fall; dividends not guaranteed |
| Typical return basis | % p.a. on principal × time | % of nominal share value OR cents per share |
| Income account | Interest income | Investment income / Dividends received |
| SFP classification | Other financial assets (non-current) or cash equivalents (current) | Other financial assets (non-current) |
7. Further journal entry examples
Accrued interest at year-end
If interest has been earned but not yet received at year-end, it must be accrued (as a year-end adjustment from Study Unit 6):
Dividend declared but not yet received
When a dividend is declared (announced) but the cash has not yet arrived, a receivable is created:
8. SFP presentation
Other non-current assets are shown under non-current assets on the Statement of Financial Position. If an investment matures within 12 months, it is reclassified as a current asset.
9. Investment income calculator
Calculate interest on cash investments or dividends on share investments.
10. Worked exercises
Other non-current assets questions in the FAC1502 exam style.
11. Quick quiz
Twelve questions on other non-current assets.