A Level Accounting: Accounting for Non-Current Assets (Cambridge 9706)

This guide covers 1.3 Accounting for non-current assets, from Topic 1, Financial accounting, for Cambridge AS & A Level Accounting 9706, 2026–2028 series.

Where this fits in 9706

Topics 1.1 and 1.2 established what a business entity is and how the double-entry system records its day-to-day transactions. 1.3 turns to a specific, longer-term category of expenditure: assets a business uses over several years rather than consumes immediately. It has two sub-points — 1.3.1 Capital and revenue income and expenditure, and 1.3.2 Changing asset values — and it sits before 1.4, Reconciliation and verification. AS Level candidates study topics 1.1–2.2; A Level candidates additionally study up to 4.4, with AS Level content assumed knowledge for A Level Papers 3 and 4.

Syllabus coverage

CAMBRIDGE AS & A LEVEL ACCOUNTING 9706 — 1.3 ACCOUNTING FOR NON-CURRENT ASSETS

1.3.1 Capital and revenue income and expenditure

• Understand the difference between the treatment of capital and revenue income, and of capital and revenue expenditure
• Understand the effect on profit/loss and asset value of the incorrect treatment of capital and revenue expenditure

1.3.2 Changing asset values

• Understand the factors that cause the value of non-current assets to depreciate
• Understand the purpose of accounting for depreciation of non-current assets and the associated application of relevant accounting concepts
• Calculate depreciation using the reducing balance and straight-line methods
• Identify the most appropriate method of calculating depreciation
• Measure the value of non-current assets by the cost model or the revaluation model
• Prepare ledger accounts and journal entries for non-current assets (acquisition and revaluation) and for depreciation and disposal (including entries for part exchange)
• Calculate profit or loss on disposal of a non-current asset
• Record the effect of a charge for depreciation in the statement of profit or loss and statement of financial position

Candidates are expected to use their understanding of this topic to evaluate relevant information and make informed business decisions.

Capital versus revenue expenditure

Capital expenditure is spending on acquiring or improving a non-current asset — something that will benefit the business over more than one accounting period, such as buying a delivery van or extending a building. Revenue expenditure is spending on the day-to-day running of the business — costs that benefit only the current accounting period, such as fuel for that van or repainting a wall. The same logic applies on the income side: capital income arises from selling non-current assets or raising long-term finance, while revenue income arises from normal trading activity, such as sales revenue.

Getting this classification wrong has a direct, calculable effect: treating capital expenditure as revenue expenditure understates profit (because it’s wrongly deducted as an expense in the current period) and understates asset value on the statement of financial position; treating revenue expenditure as capital expenditure has the opposite effect, overstating both profit and asset value.

Why non-current assets depreciate

Several factors cause a non-current asset’s value to fall over time: physical wear and tear from use, economic obsolescence as newer technology replaces it, the passing of time itself (for assets with a fixed useful life), and depletion for assets like mineral reserves. Depreciation is the accounting process of systematically allocating the cost of a non-current asset over its useful life, applying the matching/accruals concept — the cost of using the asset is matched against the revenue it helps generate in each period, rather than being charged entirely in the year of purchase.

Two depreciation methods

The syllabus requires candidates to calculate depreciation using two methods:

• Straight-line method: an equal amount of depreciation is charged in each year of the asset’s useful life, calculated as (cost − residual value) ÷ useful life. This suits assets that lose value fairly evenly over time, such as fixtures and fittings.
• Reducing balance method: a fixed percentage is applied to the asset’s carrying value (cost minus accumulated depreciation) each year, so the depreciation charge is higher in early years and falls over time. This suits assets that lose most of their value early on, such as vehicles or machinery.

Choosing the most appropriate method for a given asset is itself an examinable skill — it isn’t simply a calculation exercise, but a judgement about which pattern of value loss best matches how the asset is actually used.

Cost model versus revaluation model

Non-current assets can be measured in the financial statements in one of two ways. Under the cost model, the asset remains recorded at its original cost less accumulated depreciation. Under the revaluation model, the asset is periodically revalued to reflect its current market value, with any increase generally taken to a revaluation reserve rather than straight to profit. Candidates need to be able to prepare the ledger accounts and journal entries for both acquisition and revaluation of a non-current asset.

Disposal of non-current assets

When a non-current asset is sold, part-exchanged, or scrapped, the business compares the sale proceeds (or part-exchange allowance) with the asset’s carrying value at the point of disposal to calculate a profit or loss on disposal. This requires closing out the asset’s cost and accumulated depreciation accounts through a disposal account, and the resulting profit or loss is then recorded in the statement of profit or loss, while the depreciation charge for the year affects both the statement of profit or loss and the statement of financial position.

Common mistakes

• Charging a full year’s depreciation regardless of the depreciation policy actually stated in the question — always check whether depreciation is charged in full in the year of acquisition/disposal, pro-rata, or under a different stated policy.
• Confusing the reducing balance rate as applying to original cost rather than to the asset’s current carrying value — the reducing balance method is calculated on carrying value each year, not on the original cost every time.
• Mixing up the cost model and revaluation model when recording a gain, and forgetting that a revaluation gain is generally not treated as ordinary profit.
• Forgetting to remove both the cost and the accumulated depreciation of a disposed asset from the ledger, which leaves the disposal account unbalanced.

How to approach it

Practise the two depreciation methods side by side on the same asset and the same figures so the difference in pattern (level charge vs declining charge) becomes intuitive, then move on to full disposal workings, since these are commonly tested together in a single structured question. Keep the capital/revenue expenditure distinction sharp early on — errors here cascade into every later financial statement calculation in this syllabus.

Official syllabus

Cambridge International, AS & A Level Accounting 9706 syllabus for 2026, 2027 and 2028: https://www.cambridgeinternational.org/Images/697417-2026-2028-syllabus.pdf (verified 2026-09-01).