AS-L10 — Depreciation
Understanding how the cost of non-current assets is allocated over their useful lives.
Learning Objectives
By the end of this lesson students should be able to:
• understand the meaning and purpose of depreciation
• identify causes of depreciation
• calculate depreciation using different methods
• prepare depreciation entries
• answer examination-style questions
Concept Framework
What is Depreciation?
Depreciation is the systematic allocation of the cost of a non-current asset over its useful life.
Causes of Depreciation
Non-current assets lose value due to:
• wear and tear
• passage of time
• obsolescence
• usage
CORE RULES
| Method | Calculation Basis |
|---|---|
| Straight-Line Method | Equal amount each year |
| Reducing Balance Method | Percentage of carrying amount |
TRANSACTION LOGIC
Depreciation follows the matching principle.
Asset costs should be matched against the revenue earned from using the asset.
Depreciation is treated as an expense in the income statement.
Worked Examples
Example 1 — Straight-Line MethodCost of Asset = £10,000
Useful Life = 5 years
Residual Value = £0
Annual Depreciation:
£10,000 ÷ 5
= £2,000 per year
Example 2 — Reducing Balance MethodAsset Cost = £8,000
Depreciation Rate = 20%
Year 1 Depreciation:
20% × £8,000
= £1,600
Carrying Amount:
£8,000 − £1,600
= £6,400
Example 3 — Depreciation EntryAnnual depreciation = £1,500
Debit Depreciation Expense £1,500
Credit Provision for Depreciation £1,500
📌 Additional questions are available in the 🎯 Lesson wise premium resources and Guess Question Papers section + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define depreciation
State one cause of depreciation
Level 2 – Application Practice
Explain why depreciation is charged on non-current assets.
Level 3 – Examination Style Question
A machine costing £15,000 is depreciated using the straight-line method over 5 years with no residual value.
Calculate the annual depreciation charge.
(2 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you distinguish between depreciation methods?
2. Can you calculate depreciation accurately?
3. Can you prepare depreciation entries correctly?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Annual Depreciation:
£15,000 ÷ 5
= £3,000 per year
How This Topic Appears in the Examination
This topic commonly appears as:
• depreciation calculations
• ledger entries
• non-current asset valuation questions
Examiners assess:
• correct formula application
• understanding of accounting principles
• accurate calculations
Self-Assessment Checklist
I understand depreciation
I can explain causes of depreciation
I can calculate straight-line depreciation
I can calculate reducing balance depreciation
I can answer exam questions confidently
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