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Depreciation method

Common methods include straight-line, reducing-balance and units-of-production. Select the method that best reflects consumption, rather than whichever produces a preferred profit. Review the method at least annually; if the expected consumption pattern changes significantly, account for a resulting change in method prospectively as a change in estimate under IAS 8. Depreciation is based on depreciable amount, normally cost or revalued amount less residual value.

Worked example

A machine costs $100,000, has $10,000 residual value and a five-year life. If its benefits are consumed evenly, straight-line depreciation is ($100,000 − $10,000) ÷ 5 = $18,000 per year.

Common mistake

Choosing a method solely to reduce tax or allocating the full cost without considering residual value.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA FR Direct September 2026–June 2027
ACCA SBR Direct September 2026–June 2027