IGCSE Accounting: Capital and revenue items, depreciation and disposals (Cambridge 0452) – Revision Notes

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus (and Cambridge O Level Accounting 7707, which has the same subject content for the same series) for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus says “recovery of debts written off” where the 2027-2029 syllabus says “irrecoverable debts recovered”, asks for simple inventory valuation statements, and does not separately list choosing a depreciation method for each type of non-current asset, journal entries for purchasing a non-current asset, or calculating the profit or loss on disposal. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

These are condensed notes for syllabus sections 4.1 Capital and revenue expenditure and receipts and 4.2 Accounting for depreciation and disposal of non-current assets in Cambridge IGCSE Accounting 0452, for exams in 2027, 2028 and 2029 (version 1). The syllabus does not split these sections into tiers. Amounts are in dollars. For full explanations and worked ledgers, use the study guide, then test yourself with the practice questions. The rest of Topic 4 is in the Topic 4 revision notes. See also the course hub, the printable checklist and the free diagnostics.

Key definitions

Term	Meaning
Capital expenditure	Spending to buy or improve a non-current asset, including delivery, installation and other costs of getting it ready for use
Revenue expenditure	Day-to-day running costs and the upkeep of assets: repairs, servicing, decoration, fuel, wages
Capital receipt	Money received that is not trading income: owner’s capital, a loan, proceeds of selling a non-current asset
Revenue receipt	Income from running the business: sales, rent received, commission received
Depreciation	Part of an asset’s cost used up in a period by wear and tear, time or becoming out of date. No cash is paid
Net book value	Cost less accumulated depreciation (the balance on the provision for depreciation account)
Profit or loss on disposal	Proceeds minus net book value at the date of sale

4.1 Capital and revenue

	Where it is recorded	Where it ends up
Capital expenditure	Debit non-current asset account	Statement of financial position, then depreciation to the statement of profit or loss
Revenue expenditure	Debit expense account	Statement of profit or loss
Capital receipt	Credit capital, loan or disposal account	Statement of financial position (only a profit or loss on disposal is taken to the statement of profit or loss)
Revenue receipt	Credit income account	Statement of profit or loss

Method in steps for any payment or receipt

1. Ask whether it adds to or improves what the business owns, or only keeps it running or earns income.
2. Choose the account type: non-current asset, expense, capital or loan, or income.
3. Write the double entry, with the bank or supplier on the other side.

Effect of incorrect treatment

Mistake	Profit	Non-current assets
Revenue expenditure treated as capital	Overstated	Overstated
Capital expenditure treated as revenue	Understated	Understated
Capital receipt credited as income	Overstated	No change if the bank was debited correctly
Revenue receipt credited to capital or a liability	Understated	No change

Where depreciation was charged on the wrongly capitalised item, the overstatement is the amount less that depreciation. Reminder: 800 of repairs debited to machinery, depreciated at 25% on cost for a full year. Profit and assets are both overstated by 800 − 200 = 600.

4.2 Depreciation: why and how

Why: it matches an asset’s cost against the revenue it helps to earn, so profit is not overstated, and it stops the statement of financial position showing the asset at more than a realistic value.

Method	Calculation	Suits
Straight-line	Yearly cost after deducting residual value, spread over the years of use	Premises, machinery, fixtures and fittings
Reducing balance	Chosen rate applied to the opening net book value each year	Motor vehicles, computer equipment
Revaluation	Valuation at start, plus additions, minus valuation at end	Loose tools and other small, low-cost items

Apply the stated method, rate and policy (full year in the year of purchase, or months owned) exactly, and keep the method the same from year to year.

Journal entries to learn

Event	Debit	Credit
Buy asset for cash or bank	Non-current asset	Bank
Buy asset on credit	Non-current asset	Supplier
Annual depreciation	Statement of profit or loss	Provision for depreciation
Cost of asset sold	Disposal account	Non-current asset
Accumulated depreciation on asset sold	Provision for depreciation	Disposal account
Proceeds	Bank	Disposal account
Profit on disposal	Disposal account	Statement of profit or loss
Loss on disposal	Statement of profit or loss	Disposal account

Disposal in steps, with a worked reminder

1. Find accumulated depreciation on the asset sold only.
2. Net book value = cost − accumulated depreciation.
3. Compare proceeds with net book value, not with cost.
4. Post the cost, the accumulated depreciation and the proceeds to the disposal account. The balance is the profit or loss.

A vehicle costing 40,000 is depreciated at 25% reducing balance. After two years it is sold for 24,000.

Year 1 depreciation 25% × 40,000 = 10,000   NBV 30,000
Year 2 depreciation 25% × 30,000 =  7,500   NBV 22,500
Accumulated depreciation         = 17,500
Profit on disposal = 24,000 − 22,500 = 1,500

Disposal of vehicles account
Vehicles (cost)          40,000    Provision for depreciation   17,500
Profit or loss (profit)   1,500    Bank                         24,000
                         41,500                                 41,500

Must-know distinctions

• Cost versus net book value. Disposal profit uses net book value; the asset account is removed at cost.
• Asset account versus provision account. Depreciation is credited to the provision, so the asset stays at cost.
• Capital receipt versus revenue receipt. Only revenue receipts are income. A sale of an asset is a capital receipt.
• Straight-line versus reducing balance. Straight-line is the same each year; reducing balance falls each year because the base falls.
• Depreciation versus cash. Depreciation is not cash set aside to replace the asset.

Quick self-test

1. Classify each as capital expenditure, revenue expenditure, capital receipt or revenue receipt: (a) fitting a lift in a hotel; (b) insurance premium on vehicles; (c) a loan received; (d) fees received from customers.
2. A repair costing 540 was debited to buildings, which are depreciated at 10% on cost with a full year’s charge. State the effect on profit and on non-current assets.
3. An asset costs 54,000, has a residual value of 4,000 and lasts 10 years. Calculate straight-line depreciation for one year.
4. An asset costing 20,000 is depreciated at 30% reducing balance. Calculate year 3 depreciation, and the net book value when year 3 ends.
5. Tools were valued at 1,420 at the start of the year, 380 of tools were bought, and they were valued at 1,150 at the end. Calculate depreciation.
6. State the journal entry for a machine bought on credit from a supplier for 12,000.
7. A press cost 22,000 and has accumulated depreciation of 13,200. It is sold for 9,500. Calculate net book value and the profit or loss.
8. For question 7, state the entry that transfers the result to the statement of profit or loss.
9. A bank loan of 8,000 was credited to sales. State the effect on profit and on asset valuations.
10. Which method suits a fleet of delivery vans, and which suits a large number of small crates? Does charging depreciation use cash?

Answers

1. (a) Capital expenditure; (b) revenue expenditure; (c) capital receipt; (d) revenue receipt.
2. Depreciation charged was 54, so profit and non-current assets are both overstated by 540 − 54 = 486.
3. (54,000 − 4,000) ÷ 10 = 5,000.
4. Year 1: 6,000, net book value 14,000. Year 2: 4,200, net book value 9,800. Year 3: 30% × 9,800 = 2,940, net book value 6,860.
5. 1,420 + 380 − 1,150 = 650.
6. Debit machinery 12,000; credit the supplier 12,000.
7. Net book value = 22,000 − 13,200 = 8,800. Profit = 9,500 − 8,800 = 700.
8. Debit disposal account 700; credit statement of profit or loss 700.
9. Profit is overstated by 8,000. Asset valuations are not affected, because the bank was debited correctly.
10. Reducing balance for vans; revaluation for crates. No: depreciation is a book entry and uses no cash.

Where marks are usually lost

• Treating delivery and installation of a new asset as expenses, or repairs as part of the asset.
• Calling the proceeds of selling an asset sales, or a loan income.
• Using cost, not net book value, to find the profit or loss on disposal.
• Using original cost, not net book value, as the base for reducing balance each year.
• Crediting depreciation to the asset account when a provision for depreciation account is used.
• Leaving the sold asset’s accumulated depreciation in the provision account.
• Missing the part-year or full-year policy the question states.
• Giving the effect of an error on profit without saying whether it is overstated or understated, or without a figure.
• Forgetting to bring the balances down on the asset and provision accounts.

Frequently asked questions

What is depreciation? Depreciation is the share of a non-current asset’s cost consumed during an accounting period through wear and tear, the passage of time or obsolescence. It involves no cash payment and is not money set aside to replace the asset.

What journal entry records depreciation? Debit the statement of profit or loss and credit the provision for depreciation account. The asset account stays at cost, so net book value is cost less the provision.

What is net book value? Net book value is the cost of a non-current asset less its accumulated depreciation. The reducing balance percentage is applied to net book value each year, and the profit or loss on disposal compares proceeds with it.

How do you state the effect of an error on profit? Say whether profit is overstated or understated and give the amount. A statement that profit is simply “wrong” without a direction and figure does not earn full marks.

Official syllabus

Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), Cambridge University Press & Assessment: section 4.1 Capital and revenue expenditure and receipts and section 4.2 Accounting for depreciation and disposal of non-current assets.