Depreciation methods in AccBooks AI

What is depreciation?

Depreciation is the process of spreading the cost of a long-term asset over its useful life. It reflects the economic consumption of the asset — a computer bought for £2,000 doesn’t become worthless the moment you buy it, but it does lose value over time.

The annual depreciation charge appears on the P&L as an expense, and the accumulated depreciation is shown on the balance sheet as a deduction from the asset’s cost to give the Net Book Value (NBV).

Important: Depreciation is an accounting charge, not a tax deduction. For tax purposes, capital allowances are used instead (see Capital allowances).

Straight-line depreciation

The most common method. Spreads the cost evenly over the asset’s useful life.

Formula:
Annual charge = (Cost − Residual value) ÷ Useful life in years

Example:

• Computer cost: £2,400
• Expected residual value after 3 years: £0
• Annual depreciation: £2,400 ÷ 3 = £800/year

The NBV each year:

• End of year 1: £1,600
• End of year 2: £800
• End of year 3: £0 (fully depreciated)

Best for: Assets that depreciate evenly — furniture, leasehold improvements, buildings.

Reducing balance depreciation

Also called the declining balance method. Applies a fixed percentage to the net book value each year, so the charge is higher in early years and lower in later years.

Formula:
Annual charge = NBV at start of year × Rate %

Example:

• Computer cost: £2,400
• Reducing balance rate: 33%

Year	Opening NBV	Charge (33%)	Closing NBV
1	£2,400	£792	£1,608
2	£1,608	£531	£1,077
3	£1,077	£355	£722

The asset is never fully depreciated to zero under reducing balance — once it reaches immateriality, AccBooks gives you the option to write it off.

Best for: Assets that lose value quickly in early years — vehicles, computers, technology equipment.

Choosing a method in AccBooks

When adding an asset, select the method under Depreciation → Method:

• Straight line: enter the useful life in years (AccBooks calculates the annual rate).
• Reducing balance: enter the annual rate as a percentage.

You can also enter a residual value — the expected sale value at the end of the asset’s life. Straight-line depreciation will deduct the residual value before dividing by the useful life.

Changing the depreciation method

Once an asset is in use, FRS 102 requires that you change depreciation methods only if the new method gives a fairer presentation of the asset’s remaining economic benefits. Document your rationale under Fixed assets → [asset] → Notes.

In AccBooks, you can change the method at any time — the change applies prospectively from the date of change. AccBooks recalculates the remaining charge based on the current NBV and the remaining useful life.

First-year depreciation (pro-rating)

AccBooks pro-rates depreciation in the first year of ownership based on the month of acquisition:

• Full month — depreciation charged for the full month the asset was acquired.
• Pro-rata (daily) — exact days between acquisition date and period end.

Set your preference under Fixed assets → Settings → First-year rule.

Fully depreciated assets

When an asset reaches zero NBV, AccBooks marks it as Fully depreciated and stops posting depreciation charges. The asset remains on the register (cost and accumulated depreciation both shown) until disposal. This is correct under UK GAAP — fully depreciated assets that are still in use continue to appear on the balance sheet.

No depreciation

Select No depreciation for assets like land (which doesn’t depreciate under UK GAAP) or assets held for investment where market value is used.