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
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Direct | September 2026–June 2027 |
