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9609 · 10.1.4

Depreciation

**Depreciation** (10.1.4) completes **10.1 Accounts**. A Level questions use **straight-line** unless stated otherwise. Link **NBV** on SOFP to **ROCE** and **asset turnover** (10.2).

Need to know

What you need to know

  • Depreciation is the allocation of an asset's cost over its useful life.
  • It is a non-cash expense, meaning no money physically leaves the business.
  • It adheres to the matching principle by spreading the cost over the periods the asset generates revenue.
  • It is an accounting estimate, not a precise measure of an asset's fall in market value.

Explanation

Depreciation

  1. Depreciation is the allocation of an asset's cost over its useful life.
  2. It is a non-cash expense, meaning no money physically leaves the business.
  3. It adheres to the matching principle by spreading the cost over the periods the asset generates revenue.
  4. It is an accounting estimate, not a precise measure of an asset's fall in market value.
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