Depreciation
Depreciation systematically allocates a tangible non-current asset’s depreciable amount over its useful life. It reflects consumption of service potential through use, time or obsolescence and starts when the asset is available for use. The method should reflect the consumption pattern. The charge normally reduces profit and builds accumulated depreciation; it may instead be included in another asset’s production cost.
Worked example
Equipment costing $18,000 with $3,000 residual value and a five-year useful life has annual straight-line depreciation of $3,000.
Common mistake
Depreciation is not a valuation to market price, a cash payment or a fund set aside to buy a replacement.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | F2 | Direct | July 2027–August 2028 |
| ACCA | F3 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| CIMA | F1 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Depreciation expense