Depreciation & Amortisation — Exam-Ready Cheatsheet
SLM vs WDV, change in method, asset disposal, and the adjustments that trip up half the attempters. Typically 6–8 marks in every Paper 1 attempt.
Last reviewed: 25 April 2026
Why depreciation
- •A fixed asset's cost is spread across its useful life so each period is charged with its fair share (matching concept).
- •It's a non-cash charge: profits fall, but cash is unchanged.
- •Required under AS 10 (Property, Plant and Equipment).
Straight Line Method (SLM)
- •Equal charge every year across the asset's useful life.
- •Simple to calculate; used for buildings, furniture, non-intensive equipment.
- •Book value at end of year n = Cost − (Annual depreciation × n).
Written Down Value (WDV)
- •Fixed percentage applied to the reducing book value each year.
- •Higher charge in early years, tapers over time.
- •Used where assets yield more in the early years (vehicles, electronics).
- •Book value never quite reaches zero mathematically — scrap value lives on paper until disposal.
Change in method (AS 10 rules)
- •Retrospective effect: recompute depreciation from acquisition under the new method.
- •Difference is charged to P&L as 'excess / short provision for depreciation' in the year of change.
- •Disclose in notes: reason for change, effect on current and prior periods.
Disposal of a fixed asset
- •Compute depreciation up to the date of disposal first.
- •Transfer asset's accumulated depreciation and cost to an 'Asset Disposal' or 'Sale of Asset' account.
- •Profit/loss = Sale proceeds − Book value on disposal date.
- •Profit on sale of fixed asset → credited to P&L; loss → debited.
Formulas
- SLM — annual depreciation
- Dep = (Cost − Scrap) ÷ Useful life
- WDV — annual depreciation
- Dep (yr n) = Opening WDV × Rate%
- Rate under WDV for given life
- R = 1 − (Scrap/Cost)^(1/n) — gives the % that amortises to scrap in n years
- Book value after n years (SLM)
- BV = Cost − (Annual dep × n)
Rarely asked in Foundation but useful to sanity-check rates.
Must know before the exam
- ★Depreciation begins the day the asset is READY TO USE, not when it's first switched on.
- ★Partial-year depreciation is pro-rated by months (or days, if specified).
- ★Revaluation of assets is NOT depreciation — don't confuse the two.
- ★Under AS 10, land is NOT depreciated (infinite useful life); leasehold land IS amortised.
Common mistakes & fixes
- ✗ Using full-year depreciation on a half-year-old asset.
- ✓ Pro-rate to the months the asset was actually available.
- ✗ Forgetting to record depreciation up to the disposal date.
- ✓ Always add catch-up depreciation before computing profit/loss on sale.
- ✗ Treating change in method prospectively only.
- ✓ AS 10 requires retrospective recalculation with a one-time P&L adjustment.
Lock it in with practice
Reading without practising is the #1 reason people forget in the exam. Solve a quick set while this is fresh.