1. Nature of Non-Current Assets
Non-current assets (e.g., vehicles, buildings, machinery) are long-term resources owned by a business to generate revenue over multiple years. Except for freehold land, these assets lose economic usefulness over time due to physical wear and tear, usage, and obsolescence.
2. Defining Depreciation
Depreciation is not an attempt to measure the fluctuating market value of an asset. Instead, it is the systematic and rational allocation of the historical cost of an asset as an expense across the useful life of that asset (Matching Principle).
3. Core Terminology
  • Historical Cost: The original purchase price plus delivery and installation costs.
  • Residual Value (Scrap Value): The estimated amount the asset will be worth at the end of its useful life.
  • Depreciable Amount: Cost minus Residual Value.
  • Accumulated Depreciation: A contra-asset account tracking the total depreciation charged against an asset since it was purchased.
  • Net Book Value (NBV): Cost minus Accumulated Depreciation.

 
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