ACF5950 · Introduction to Financial Accounting
Non-Current Assets and Depreciation
Week 9 accounts for non-current assets: determining the cost of property, plant and equipment, allocating that cost through depreciation (straight-line and reducing-balance), tracking carrying amount and accumulated depreciation, and recording disposals with any gain or loss. Depreciation is cost allocation, not valuation, and the recognition of PPE ties back to the Conceptual Framework criteria from Week 1. Depreciation calculations and disposal entries are reliable exam and Quiz/Test items. The week shown is the unit's standard arc — confirm the exact teaching week on Moodle / the unit outline.
What this chapter covers
- 01Cost of PPE: purchase price plus all costs to bring the asset to location and condition for use
- 02Capital expenditure (capitalised) vs revenue expenditure (expensed)
- 03Depreciation as systematic cost allocation over useful life — not valuation
- 04Straight-line method: (cost − residual) ÷ useful life
- 05Reducing (diminishing) balance method: rate × opening carrying amount (residual not deducted first)
- 06Carrying amount = cost − accumulated depreciation; the contra-asset presentation
- 07Disposal: gain/(loss) on disposal = proceeds − carrying amount at disposal
- 08Impairment and intangible assets (amortisation; goodwill not amortised)
Straight-line vs reducing-balance depreciation and a disposal
- +1Straight-line annual depreciation = (cost − residual) ÷ useful life = (50,000 − 5,000) ÷ 5 = 9,000 per year.
- +1Reducing-balance at 40% on the opening carrying amount (residual not deducted first): Year 1 = 0.40 × 50,000 = 20,000, leaving carrying amount 30,000; Year 2 = 0.40 × 30,000 = 12,000, leaving carrying amount 18,000.
- +1Under straight-line, accumulated depreciation after 2 years = 2 × 9,000 = 18,000, so carrying amount = 50,000 − 18,000 = 32,000.
- +1Disposal for 20,000: gain/(loss) = proceeds − carrying amount = 20,000 − 32,000 = −12,000, a $12,000 loss on disposal.
Key terms
- Property, plant and equipment (PPE)
- Tangible non-current assets held for use in operations; recognised at cost = purchase price plus all costs to bring the asset to working condition and location.
- Depreciation
- The systematic allocation of a depreciable asset's cost (less residual value) over its useful life; it is cost allocation, not a measure of market value.
- Straight-line depreciation
- An equal annual charge = (cost − residual value) ÷ useful life.
- Reducing-balance depreciation
- An accelerated method charging a fixed rate on the opening carrying amount each year; residual value is not deducted before applying the rate.
- Carrying amount
- Cost less accumulated depreciation — the value at which the asset is shown on the balance sheet (book value).
- Gain or loss on disposal
- Proceeds on sale less the carrying amount at the disposal date; a positive figure is a gain, a negative figure a loss.
Non-Current Assets and Depreciation FAQ
Is depreciation a way of valuing an asset?
No. Depreciation is the systematic allocation of an asset's cost, less residual value, over the periods that benefit from its use. It matches the cost of using the asset against the revenue it helps earn; it is not an attempt to track the asset's market value. The carrying amount (cost − accumulated depreciation) is a cost-allocation figure, not a valuation.
How do straight-line and reducing-balance differ?
Straight-line charges an equal amount each year, computed as (cost − residual) ÷ useful life. Reducing-balance applies a fixed percentage to the opening carrying amount, so the charge is largest early and declines over time; crucially, the residual value is not deducted before applying the rate. Both allocate cost, but with different patterns.
How do I compute the gain or loss on disposal?
Update depreciation to the disposal date, then compare the sale proceeds with the carrying amount (cost − accumulated depreciation) at that date. Proceeds above carrying amount is a gain; below is a loss. The most common mistake is comparing proceeds with the original cost instead of the carrying amount.
Can AI help me with depreciation and disposal in ACF5950?
Yes, as a study aid. Sia can compute straight-line and reducing-balance schedules, track carrying amount, and work a disposal gain or loss step by step. It is for understanding and rehearsal only, not graded work — confirm the AI policy for each assessment on Moodle, as Monash academic-integrity rules apply.
Exam move
Keep the two depreciation methods clearly apart: straight-line subtracts residual first and spreads the result evenly, while reducing-balance applies the rate to the opening carrying amount with no residual deduction. Build a small schedule for each — cost, annual charge, accumulated depreciation, carrying amount — because disposals draw on the carrying amount at the sale date. For disposals, always compute gain or loss as proceeds minus carrying amount, never proceeds minus cost. Link recognition back to the Week-1 Conceptual Framework criteria to answer the conceptual parts. Depreciation and disposal calculations are dependable exam and Quiz/Test marks, so drill the schedules and the disposal entry until they are automatic.
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