10.1.4—Depreciation

Depreciation spreads the depreciable cost of a non-current asset over the periods that benefit from its use. It reflects consumption of service potential; it is not a cash payment in the period recorded.

Method and useful-life estimates affect reported profit and asset value. A review is needed when usage, technology or residual value changes.

A machine bought for £10,000 with a four-year useful life may create an annual expense under straight-line assumptions, while cash was paid at purchase.

Depreciation does not set the market price of an asset and does not create a cash fund automatically.