Accounting (AS)·Depreciation & disposal · NSSCAS 2.1.2
Depreciation: nature, causes & methods
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Every van, machine and computer loses value — and Accounting has exact rules for showing that loss. In this lesson you will learn what depreciation and the provision for depreciation really are, what causes assets to lose value, how to split capital from revenue items, and how the straight-line, reducing-balance and revaluation methods work. This is a Paper 1 favourite: examiners love asking you to explain the methods and to justify which method suits which asset.
What you'll learn in this lesson
By the end you should be able to (NSSCAS Accounting (AS) 2.1.2):
- explain the need for depreciation and provision for depreciation
- explain the meaning of depreciation and provision for depreciation and its effect on non-current assets (prudence and matching principles)
- explain the causes of depreciation
- explain the reasons for depreciation
- explain the difference between capital and revenue receipts and capital and revenue expenditure
- explain the different methods of depreciation: straight line, reducing balance, revaluation
- state the advantages and disadvantages of each of the above methods of depreciation
- state and justify which of the above methods of depreciation is most suitable for each non-current asset
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Miss Olivia and Mike talk through the whole topic — with the figure and working drawn live.