What is depreciation and what are the 2 methods of depreciating non-current assets?

It is a way of measuring the amount of the fall in value of NCAs over a period of time. It is perceived as a measure of the consumption of the asset over its useful economic lifetime.

It is a non-cash expense.

The two most common methods of calculating depreciation are:


Depreciation is calculated using the following formula:

(cost of the asset-residual value)/ nr of years an asset is expected to be used for

Reducing balance method

A fixed percentage is written off the reduced balance each year.

The reduced balance is the cost of the asset less depreciation to date.

The differences between the 2 methods are:

-Depreciation amount is the same each year when using the straight line method, reducing balance method on the contrary provides us with different money amounts each year: more than the straight line in the early years, less in the later years,

-When using the straight-line method, lower depreciation percentage is required to achieve the same residual value as with the reduced balance method,

-Straight-line method is suitable for fixed assets that are likely to be kept for the whole of their expected lives, whereas reducing balance method is best used for non-current assets which appreciate more in the early years and are not kept for the whole of their expected lives.

Maria J. A Level Accounting tutor, A Level Maths tutor, GCSE Economic...

2 years ago

Answered by Maria, an A Level Accounting tutor with MyTutor

Still stuck? Get one-to-one help from a personally interviewed subject specialist


£20 /hr

Joseph F.

Degree: Accounting and Finance (Bachelors) - Exeter University

Subjects offered:Accounting, Maths


“Friendly, patient and hardworking tutor who will give all for the students success.”

MyTutor guarantee

About the author

Maria J.

Currently unavailable: for regular students

Degree: Accounting and finance (Bachelors) - Exeter University

Subjects offered:Accounting, Maths+ 1 more


“I'm Maria and I'm a third year Accounting and Finance student at Exeter University. I'd love to help you with anything you struggle with- in the areas of A Level Accounting, Maths and GSCE Economics.”

You may also like...

Other A Level Accounting questions

what are the different types of capital expenditure appraisal?

What is the difference between reducing balance method depreciation and straight line depreciation?

what is accounting

What is the difference between accounts in balance sheet and income statement

View A Level Accounting tutors

We use cookies to improve your site experience. By continuing to use this website, we'll assume that you're OK with this. Dismiss