Financial Accounting Study Notes
Topic: Depreciation
Definition:
Depreciation is the gradual decrease in the value of a fixed asset due to usage, wear and tear, or
age.
Causes of Depreciation:
• Wear and tear
• Obsolescence
• Passage of time
• Depletion
Importance:
• Shows true asset value
• Helps calculate accurate profit
• Ensures proper financial reporting
Straight Line Method Formula:
Depreciation = (Cost – Residual Value) ÷ Useful Life
Example:
Cost = ■500,000
Residual Value = ■50,000
Useful Life = 5 years
Depreciation = ■90,000 per year
Reducing Balance Method:
Depreciation is calculated on the remaining value each year.
Exam Tip:
Always write formula, show steps, and give final answer clearly.
Summary:
Depreciation is an essential accounting concept used to reduce asset value over time and show
accurate profit.
Topic: Depreciation
Definition:
Depreciation is the gradual decrease in the value of a fixed asset due to usage, wear and tear, or
age.
Causes of Depreciation:
• Wear and tear
• Obsolescence
• Passage of time
• Depletion
Importance:
• Shows true asset value
• Helps calculate accurate profit
• Ensures proper financial reporting
Straight Line Method Formula:
Depreciation = (Cost – Residual Value) ÷ Useful Life
Example:
Cost = ■500,000
Residual Value = ■50,000
Useful Life = 5 years
Depreciation = ■90,000 per year
Reducing Balance Method:
Depreciation is calculated on the remaining value each year.
Exam Tip:
Always write formula, show steps, and give final answer clearly.
Summary:
Depreciation is an essential accounting concept used to reduce asset value over time and show
accurate profit.
