This module covers how a business shares the cost of a non-current asset over the years it is used, using straight-line and reducing-balance depreciation. It then follows the asset to its sale: removing cost and accumulated depreciation, finding the profit or loss on disposal, and keeping that apart from the cash received.
It ends with what changes when an estimate is revised. Check the current Cambridge IGCSE Accounting 0452 syllabus page for the exact wording of each content point in your exam year.
What should you already know?
You need to know why an item is treated as a non-current asset and not as an expense, from capital and revenue treatment. You also need to post a double entry, from double-entry foundations, and to work out a percentage of an amount. If you can say why buying a machine is capital expenditure, you are ready.
An orienting example
Rotan Furniture buys a sanding machine for RM 10,000. It expects the machine to last 5 years with no residual value, using straight-line depreciation. After 2 years, the machine is sold for RM 7,000.
Step 1, annual charge: 10,000 ÷ 5 = RM 2,000 a year.
Step 2, accumulated depreciation after 2 years: 2,000 × 2 = RM 4,000. The carrying amount is 10,000 − 4,000 = RM 6,000.
Step 3, compare with proceeds: 7,000 − 6,000 = RM 1,000 profit on disposal.
Step 4, check on the disposal account: debit side is cost 10,000 plus profit 1,000 = 11,000. Credit side is accumulated depreciation 4,000 plus bank 7,000 = 11,000. Both sides agree.
Notice that the cash received was RM 7,000 but the profit was only RM 1,000. Keeping those two figures apart is a theme of the whole module.
In what order should you study the lessons?
- Calculate straight-line depreciation: start here, because every later skill uses the idea of an annual charge and a carrying amount.
- Calculate reducing-balance depreciation: the charge changes each year, so the base must be tracked in a table.
- Record a disposal with accumulated depreciation: uses both earlier lessons to find the amount to remove from the books.
- Distinguish proceeds from profit on disposal: separates the cash from the profit or loss.
- Explain the effect of changing an estimate without inventing a policy: shows how the charge moves when life or residual value is revised.
Then attempt the depreciation and asset disposal practice set. The next module, accruals and prepayments, uses the same idea of matching amounts to the right period.
What are the common traps?
- Ignoring residual value. Dividing the whole cost by the life writes the asset down too far.
- Applying the rate to cost every year in reducing balance. The base is the carrying amount at the start of the year.
- Comparing proceeds with cost. The comparison is with carrying amount, which is cost minus accumulated depreciation.
- Treating proceeds as profit. Proceeds are cash or a receivable. Profit is proceeds minus carrying amount.
- Restating past years after a change of estimate. Unless the question says so, change the charge from now on.
How should you use the practice set?
Work each question on paper, writing the base for every percentage. Then compare your working with the full answer, not only the final figure. A correct total can hide a wrong base, and that is the habit this module warns against.
When you miss a question, note the type of error in the mistake log and retest queue and try a fresh question a few days later. The percentage-base explorer shows what happens when a rate is applied to a changing base, and the double-entry and ledger trainer checks your postings.
The cash versus profit bridge helps with disposals on credit. Students who want a teacher to watch their working as they build a disposal account can consider online one-to-one Accounting tuition.