Principles of Accounts · Secondary 3 · Adjustments to Financial Statements · 3.º Período

Depreciation of Non-Current Assets

Students explore the concept of depreciation and calculate it using straight-line and reducing-balance methods. They will record depreciation and accumulated depreciation in the ledger.

TL;DR:Depreciation is the systematic allocation of the cost of a non-current asset over its useful life. Students learn that depreciation is not about the asset's market value, but about the matching principle, matching the cost of using the asset against the revenue it helps generate. This topic introduces the straight-line and reducing-balance methods, each reflecting different patterns of asset usage.

• MOE Syllabus Outcomes
• MOE POA Syllabus 7087, Section 6.3
• MOE POA Syllabus 7087, Section 6.4

About This Topic

Depreciation is the systematic allocation of the cost of a non-current asset over its useful life. Students learn that depreciation is not about the asset's market value, but about the matching principle, matching the cost of using the asset against the revenue it helps generate. This topic introduces the straight-line and reducing-balance methods, each reflecting different patterns of asset usage.

In Singapore's fast-paced economy, understanding how assets like machinery or office equipment lose their 'accounting value' is essential. Students learn to record depreciation expense and track accumulated depreciation. This topic comes alive when students can physically model the patterns of value reduction over time and compare how different methods affect the business's bottom line.

Key Questions

1. Why do non-current assets depreciate?
2. What is the difference between straight-line and reducing-balance methods?
3. How is accumulated depreciation presented in the balance sheet?

Watch Out for These Misconceptions

Common Misconception

Depreciation is a way to save cash to buy a new asset.

What to Teach Instead

Clarify that depreciation is a non-cash expense and does not involve a bank account. Using a 'Cash vs. Non-Cash' sorting activity helps students realize that depreciation is an accounting adjustment, not a savings plan.

Common Misconception

Accumulated depreciation is an asset.

What to Teach Instead

Explain that it is a contra-asset account that reduces the carrying amount of the asset. Showing how it is 'subtracted' in the Statement of Financial Position via a visual template helps correct this.

Active Learning Ideas

Inquiry Circle

The Method Match

Groups are given two assets: a delivery van and a computer. They must calculate depreciation for both using both methods over 3 years and decide which method is more appropriate for each asset.

45 min·Small Groups

Think-Pair-Share

Why Depreciate?

Students think about why a business doesn't just record the full cost of a machine as an expense in the first year. They pair up to discuss the matching principle and share with the class.

15 min·Pairs

Stations Rotation

Ledger Practice

Set up stations for calculating depreciation, recording the journal entry, and updating the Accumulated Depreciation ledger account. Students rotate to complete the full cycle for a specific asset.

50 min·Small Groups

Frequently Asked Questions

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

Straight-line depreciation charges the same amount every year. Reducing-balance depreciation charges a fixed percentage on the carrying amount, resulting in higher depreciation in the early years and lower in later years.

Why do we use the matching principle for depreciation?

The matching principle requires that the cost of an asset be spread over the years it is used to earn revenue. This ensures that the profit for each year is calculated accurately by including the 'cost' of using the asset.

How can active learning help students understand depreciation?

Active learning, such as 'The Method Match', allows students to see the mathematical impact of different methods. By comparing the results side-by-side, they understand why a business might choose one method over another based on how the asset is used, making the concept more than just a formula.

What is the 'carrying amount' of an asset?

The carrying amount (or book value) is the original cost of the non-current asset minus its accumulated depreciation to date. It represents the remaining unallocated cost of the asset.