Calculate depreciation by three methods
Calculate straight-line, reducing-balance and revaluation depreciation using the method that fits the stated asset information.
Section 4.2 · Depreciation and disposal of non-current assets
Cambridge IGCSE Accounting 0452 / (9–1) 0985, 2027–2029 Version 1. These lessons follow the 2027–2029 syllabus only; the separate 2026 syllabus update is not yet mapped. Written practice is self-checked, not an official Cambridge grade. Full timed-paper practice and human subject-teacher review remain pending.
Before you begin
- No previous accounting study is assumed. Keep the business, transaction and accounting period in view, and distinguish a resource, a claim and a performance result.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A $10,000 asset is depreciated at 10% reducing balance. What is year-one depreciation?
What you will learn
- Explain the meaning of depreciation
- Explain the need to account for depreciation
- Calculate straight-line depreciation
- Calculate reducing-balance depreciation on opening net book value
- Calculate depreciation using the revaluation method
- Describe the appropriate method for different types of non-current assets
Match the calculation to the method
Depreciation is the accounting allocation of a non-current asset's depreciable amount over its useful life. It recognises that the asset's service potential is used over time; it is not a cash fund or a direct measure of market value.
Straight-line depreciation allocates the depreciable amount evenly across the useful life. If a residual value is supplied, depreciable amount is cost less residual value; divide by useful life. A rate on cost gives a constant annual charge when specified.
Reducing-balance depreciation applies the rate to the asset's opening net book value for each year. The charge normally falls as net book value falls; do not apply the percentage to original cost each year unless the question specifies that method.
Choose a method that reflects how the asset's benefits are expected to be used, and apply the business's stated policy consistently. Straight-line may suit office furniture used evenly over several years; reducing balance may suit a vehicle whose service potential falls faster in early years. These are reasoned examples, not automatic rules: use the asset evidence in the question.
Use revaluation for items valued at each period end
Under the revaluation method, depreciation is the opening value plus additions less disposals and closing value, using consistent values for the items in the account. This method can be suitable for a collection of low-value items, such as small tools, when individual useful lives are difficult to estimate.
Show the time period, rate and base. Do not compare a straight-line charge with a reducing-balance charge without noting that the methods use different bases and produce different patterns. A method is not selected only because its calculation is convenient.
Pause and explain
Opening revalued items are $2,400, additions are $600, disposals are nil and closing revalued items are $2,100. Find depreciation by revaluation.
Worked example
A machine costs $15,000, has a residual value of $3,000 and a four-year useful life. Calculate annual straight-line depreciation. Then find year-one reducing-balance depreciation at 20% of cost.
Show the worked solution
- Straight line: (15,000 − 3,000) ÷ 4 = $3,000 per year.
- Reducing balance year one: 20% × 15,000 = $3,000.
- They happen to match in year one here; their later-year charges differ.
Answer Annual straight-line depreciation is $3,000. Year-one reducing-balance depreciation is also $3,000.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A machine costs $12,000, has no residual value and a six-year life. Calculate annual straight-line depreciation.
Give me a hint
Divide the depreciable amount by useful life.
Compare my reasoning
- Depreciable amount = $12,000.
- 12,000 ÷ 6 = $2,000.
- The annual charge is constant under straight line.
Annual depreciation is $2,000.
Look for these in your work
- Base correct
- Calculation correct
- Method pattern stated
An asset has opening net book value $9,000 and uses 20% reducing-balance depreciation. Calculate year-one charge and closing net book value, then year-two charge.
Give me a hint
Apply the rate to each year's opening net book value.
Compare my reasoning
- Year one charge = 20% × 9,000 = $1,800; closing value = $7,200.
- Year two charge = 20% × 7,200 = $1,440.
- The charge falls because the base falls.
Year one depreciation $1,800; closing value $7,200; year two depreciation $1,440.
Look for these in your work
- Year-one charge correct
- Closing value correct
- Year-two base correct
A business has small tools valued as a group: opening value $3,200, additions $450, disposals $250 and closing value $2,700. Calculate depreciation. It also has office furniture expected to provide similar service each year and delivery vans expected to lose more service potential in early years. Suggest a method for each and explain the evidence needed.
Give me a hint
Calculate the revaluation-method amount, then link each suggested method to the expected pattern of use.
Compare my reasoning
- Small-tools depreciation = 3,200 + 450 − 250 − 2,700 = $700.
- Straight-line may fit the furniture if its service potential is expected to be used evenly; reducing balance may fit the vans if the question supports a faster early decline.
- The business should use evidence about useful life and asset use, and apply its policy consistently.
Small-tools depreciation is $700. Straight-line may suit furniture used evenly and reducing balance may suit vans with faster early use, provided the evidence supports those patterns; these choices should follow the stated policy.
Look for these in your work
- Revaluation calculation correct
- Method linked to use pattern
- Choice qualified by evidence
Common mistakes
- Applying reducing-balance depreciation to original cost every year
- Forgetting to subtract residual value when the straight-line method uses it
- Treating the revaluation method as a percentage calculation
What can you explain now?
Reducing-balance depreciation at 20% is applied to which amount?
Compare with the explanation
Opening net book value
The method applies the rate to the remaining carrying amount at the start of the period.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
What value is the base for reducing-balance depreciation at the start of each year?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.