OxfordAQA IGCSE Accounting: Capital and revenue, depreciation and disposal (9215) – Revision Notes

These notes condense the part of section 3.3 of the OxfordAQA International GCSE Accounting (9215) specification, version 1.2 (exams from May/June 2026), that deals with capital and revenue items, depreciation and disposals. Full explanations and worked examples are in the study guide. Test yourself with the practice set. Other links: course hub, checklist and free diagnostics. Amounts are in dollars. For double entry practice, see the recording notes.

Capital and revenue at a glance

	Capital	Revenue
Expenditure	Buys or improves a non-current asset, or gets it ready for use	Running costs and keeping assets in working order
Benefit lasts	More than one period	The current period
Shown in	Statement of financial position	Income statement
Income	Sale proceeds of a non-current asset; capital introduced by the owner	Sales, rent received, commission received

Test question: does this spending add to what the business owns for the long term, or does it keep things running? Delivery, installation and legal costs of acquiring an asset are capital. Repairs and servicing are revenue.

Typical capital expenditure: buying a vehicle, fitting out new premises, paying carriage on a machine bought, legal fees on buying a building. Typical revenue expenditure: wages, fuel, insurance, servicing a vehicle, replacing a small part. Typical capital income: money from selling an old van, extra capital paid in by the owner. Typical revenue income: sales, fees earned, interest received, rent received.

If an item is put in the wrong place

Error	Profit	Assets
Capital item charged as an expense	Understated	Understated
Revenue item added to an asset	Overstated	Overstated

Correct profit by adding back the capital item wrongly expensed, or deducting the revenue item wrongly capitalised. Ignore the small depreciation effect unless asked.

Why assets depreciate

• Wear and tear from use.
• Obsolescence: replaced by newer, better equipment.
• Passage of time and age.

Depreciation spreads cost over the useful life. It is not a market valuation.

Depreciation is a non-cash expense

• Cash leaves when the asset is bought, not when depreciation is charged.
• The charge reduces profit.
• The charge reduces the value of the asset in the statement of financial position.
• Net book value (NBV) = cost − provision for depreciation.

The two methods

	Straight line	Reducing balance
Charge	(Cost − residual value) ÷ life	Fixed % of NBV at start of year
Pattern	Same every year	Falls each year
Residual value	Deducted before dividing	Not deducted in the calculation
Suits	Assets used evenly	Assets that lose value fastest early on

Use one method consistently.

Worked reminder: both methods

Machine cost 36,000.

• Straight line, residual 4,000, life 8 years: (36,000 − 4,000) ÷ 8 = 4,000 each year.
• 20% reducing balance: Year 1 is 7,200 (NBV 28,800); Year 2 is 5,760 (NBV 23,040); Year 3 is 4,608 (NBV 18,432).

Method in steps: recording depreciation

1. Debit depreciation account, credit provision for depreciation account.
2. Transfer the depreciation account to the income statement.
3. Carry the provision forward as a credit balance (it grows each year).
4. Asset account stays at cost.
5. In the statement of financial position, show cost, less provision, equals NBV.

Account	Side	Amount
Depreciation	Debit	Year’s charge
Provision for depreciation	Credit	Year’s charge
Income statement	Debit	Year’s charge

Worked reminder: the second year of a reducing balance asset

Equipment cost 16,000 and is depreciated at 25% reducing balance. Year 1 charge is 4,000 and the NBV is 12,000. Year 2 charge is 25% × 12,000 = 3,000.

Provision for depreciation	Debit	Credit
Year 2 balance c/d	7,000
Year 2 balance b/d		4,000
Year 2 depreciation		3,000
Totals	7,000	7,000

Statement of financial position extract: equipment 16,000, less provision 7,000, NBV 9,000.

Method in steps: disposal account

1. Debit: the asset account at cost.
2. Credit: the provision for depreciation on that asset.
3. Credit: the sale proceeds (debit bank, or the account of the buyer if on credit).
4. Balance the account. The difference is the profit or loss.
5. Credits fall short of the debit: loss, entered on the credit side.
6. Credits exceed the debit: profit, entered on the debit side.
7. Transfer the profit or loss to the income statement.

Quick check: profit or loss = proceeds − NBV.

Worked reminder: a loss

Cost 30,000; provision 21,000; sold for 7,000.

Debit		Credit
Asset at cost	30,000	Provision for depreciation	21,000
		Bank	7,000
		Loss on disposal	2,000
Total	30,000	Total	30,000

NBV is 9,000, proceeds are 7,000, so the loss is 2,000.

Worked reminder: a profit

Cost 20,000; provision 12,000; sold for 9,500. NBV is 8,000, so there is a profit of 1,500. The debit side holds the asset at cost (20,000) and the profit (1,500), a total of 21,500. The credit side holds the provision (12,000) and the bank receipt (9,500), also 21,500.

Part-year depreciation before sale

If the asset is sold part way through the year and the question says to charge depreciation for the months owned, charge it first, add it to the provision, then open the disposal account. Read the question for the policy used.

Wording to use in written answers

• Say “capital expenditure” or “revenue expenditure”, then give the reason in one clause: “it brings the asset into use” or “it keeps the asset in working order”.
• For a reason why an asset depreciates, name the cause and link it to the asset: “newer machines make this one obsolete, so it earns less”.
• For non-cash, say what does not happen: no money leaves the bank when the charge is posted.
• For a disposal, label the entry as profit or loss on disposal and say it goes to the income statement.

Must-know distinctions

• Cost versus NBV: the asset account holds cost; NBV is cost less provision.
• Depreciation expense versus provision: the expense is the year’s charge in the income statement; the provision is the total to date in the statement of financial position.
• Loss on disposal versus a fall in value: the loss is measured against NBV, not against cost.
• Capital income versus revenue income: sale proceeds of a non-current asset are not sales.
• Straight line versus reducing balance: only straight line subtracts a residual value in the formula.

Quick self-test

1. Is buying a photocopier for the office capital or revenue expenditure?
2. Is replacing a broken window pane capital or revenue expenditure?
3. Give two reasons why a non-current asset depreciates.
4. Straight line: cost 45,000, residual value 5,000, life 10 years. Annual charge?
5. 30% reducing balance on cost 50,000. What is the charge in Year 2?
6. Cost 50,000, provision 38,000, sold for 9,500. State the profit or loss.
7. On which side of the disposal account does the provision for depreciation appear?
8. Is depreciation a cash flow? Explain briefly.
9. Repairs of 2,000 are wrongly added to the cost of an asset. What is the effect on profit?
10. 20% reducing balance on 36,000. What is the provision after three years?
11. Are the proceeds of selling old equipment capital or revenue income?
12. Cost 18,000, provision 7,500. What is the NBV?

Answers

1. Capital expenditure.
2. Revenue expenditure.
3. Any two from: wear and tear, obsolescence, passage of time.
4. (45,000 − 5,000) ÷ 10 = 4,000.
5. Year 1 charge 15,000, NBV 35,000, so Year 2 is 30% × 35,000 = 10,500.
6. NBV 12,000, proceeds 9,500, so a loss of 2,500.
7. The credit side.
8. No. The cash went out when the asset was bought; the charge only reduces profit and the asset value.
9. Profit is overstated by 2,000 (before any depreciation effect).
10. NBV after three years is 18,432, so the provision is 36,000 − 18,432 = 17,568.
11. Capital income.
12. 18,000 − 7,500 = 10,500.

Where marks are usually lost

• Describing a repair as capital because it is expensive, when its purpose is upkeep.
• Writing a reason for depreciation as “the asset gets old” with no link to wear, obsolescence or time.
• Using the straight line formula without deducting the residual value.
• Applying the reducing balance percentage to the original cost each year.
• Putting the profit on the credit side of the disposal account, or the loss on the debit side.
• Entering NBV in the disposal account instead of cost and provision separately.
• Leaving out the provision for depreciation in the statement of financial position extract.
• Treating the depreciation charge as a payment that reduces the bank balance.
• Missing the months of depreciation owed in the year of sale when the question asks for them.

Frequently asked questions

How do you tell capital expenditure from revenue expenditure? Ask whether the spending adds to what the business owns for the long term, or keeps the business running day to day. Buying a vehicle or paying carriage on a machine bought is capital expenditure; wages, fuel, insurance and servicing a vehicle are revenue expenditure.

Why do non-current assets depreciate? Through wear and tear from use, obsolescence when newer, better equipment replaces them, and the passage of time. Depreciation spreads the cost over the useful life; it is not a market valuation.

Is depreciation a cash expense? No. Cash leaves when the asset is bought, not when depreciation is charged. The charge reduces profit and the net book value of the asset, but not the bank balance.

How is depreciation recorded in OxfordAQA International GCSE Accounting 9215? Debit the depreciation account and credit the provision for depreciation account with the year’s charge, then transfer the depreciation to the income statement. The statement of financial position shows cost less the provision, giving net book value.

Are proceeds from selling a non-current asset sales income? No. Sale proceeds of a non-current asset are capital income, recorded in the disposal account, not sales.

Official syllabus

OxfordAQA International GCSE Accounting (9215), specification version 1.2, first teaching 2024, first examined 2026, published by OxfordAQA. Section 3.3, Development of the accounting model.