Changing asset values

Need to know

What you need to know

• Depreciation matches the cost of an asset to the periods in which it generates revenue.
• It is a non-cash expense that reduces profit and the asset's carrying amount (net book value).
• The straight-line method allocates cost evenly over the asset's life.
• The reducing balance method allocates a higher charge in the earlier years of an asset's life.

Explanation

Changing asset values

1. Depreciation matches the cost of an asset to the periods in which it generates revenue.
2. It is a non-cash expense that reduces profit and the asset's carrying amount (net book value).
3. The straight-line method allocates cost evenly over the asset's life.
4. The reducing balance method allocates a higher charge in the earlier years of an asset's life.