9609 · 10.1.4
Depreciation flashcards
Revision flashcards for Cambridge 9609 Depreciation (syllabus 10.1.4). Flip, recall, then mark a real past-paper question.
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Why depreciate?
Match asset cost to the periods benefiting from its use (accruals concept); reflect fall in value/usefulness.
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Straight-line formula?
Annual depreciation = (Cost − Residual value) ÷ Expected useful life (years).
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Net book value (NBV)?
Cost − Accumulated depreciation.
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Where does depreciation appear?
Expense in statement of profit or loss; deducted from asset on SOFP.
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Residual value?
Estimated proceeds at end of useful life — not depreciated.
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Accumulated depreciation?
Total depreciation charged to date (contra-asset).
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Effect on cash?
Non-cash expense — profit falls but cash may not (important for cash flow analysis).
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Link to 10.3 investment?
Capital expenditure creates assets that are then depreciated over life.
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What is the formula for the straight-line method of depreciation?
(Historic Cost - Residual Value) / Useful Economic Life. This calculates the fixed annual depreciation expense.
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Define Net Book Value (NBV).
The value of a non-current asset on the Statement of Financial Position. It is calculated as: Historic Cost - Accumulated Depreciation.
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How does depreciation affect the Income Statement?
It is recorded as a non-cash expense (an overhead). This reduces the net profit (or increases the net loss) for the accounting period.
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How is a non-current asset shown on the Statement of Financial Position?
It is shown at its Net Book Value (NBV), which is its Historic Cost less the Accumulated Depreciation to date.
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What is the 'matching principle' in the context of depreciation?
It is the accounting principle of matching the cost of an asset (through depreciation) against the revenues it helps to generate over its useful life, rather than expensing the full cost at purchase.