OxfordAQA IGCSE Accounting: Capital and revenue items, depreciation and disposal of non-current assets (9215)

This guide follows the OxfordAQA International GCSE Accounting (9215) specification, version 1.2, for exams from May/June 2026 onwards. It covers the part of section 3.3 (Development of the accounting model) on capital and revenue expenditure and income, depreciation and the disposal of non-current assets. The qualification is untiered. All amounts in this guide are in dollars. Revision notes are at the revision notes and exam-style questions at the practice set. Course hub: OxfordAQA IGCSE Accounting. Printable list of topics: checklist. To find weak spots first, use the free diagnostics. Double entry basics are in Sources and recording of data.

What the specification asks you to do

Specification point (section 3.3)	What you must be able to do
Capital and revenue expenditure and income	Tell the four apart and say where each is recorded
Why non-current assets depreciate	Identify and explain reasons, for example obsolescence and wear and tear
Depreciation as a non-cash expense	Treat it as one, and know its effect on the valuation of assets
Straight line and reducing balance	Explain and apply both methods
Entering depreciation	Post it to the books, including the provision for depreciation
Disposal of a non-current asset	Record the sale, using a disposal account

The specification also lists depreciation charges and disposals among the adjustments recorded in ledger accounts, so these entries appear in the work you do for financial statements.

Capital and revenue: expenditure

Capital expenditure is spending that buys, improves or brings a non-current asset into use. The benefit lasts for more than one accounting period. It is recorded as an asset and appears in the statement of financial position.

Revenue expenditure is spending on the day-to-day running of the business, or on keeping an asset in its present condition. The benefit is used up in the period. It is an expense in the income statement.

Costs needed to get an asset ready for use count as capital: delivery, installation and legal fees on buying property. Repairs and maintenance count as revenue.

Worked example 1: classifying items

Thorncombe Bakery made these payments in its first year. Classify each one.

Payment	Amount	Classification	Reason
New industrial oven	4,800	Capital expenditure	Lasts many years
Delivery and fitting of the oven	350	Capital expenditure	Needed to bring it into use
Replacing a broken oven element	120	Revenue expenditure	Restores, does not improve
Routine repainting of the shop	640	Revenue expenditure	Maintenance
Solicitor’s fee on buying the shop	900	Capital expenditure	Cost of acquiring the property

Capital and revenue: income

Revenue income comes from the normal trading and investing activity of the business: sales, rent received, commission received and similar. It is credited to the income statement.

Capital income is money received that is not from normal trading: proceeds from selling a non-current asset, and extra capital put in by the owner. It does not go to the income statement as sales. Sale proceeds go through the disposal account (explained below). Capital introduced increases the owner’s capital in the statement of financial position.

Receipt	Classification
Sale of bread to customers	Revenue income
Rent received for letting the flat above the shop	Revenue income
Owner pays 5,000 into the business bank account	Capital income
Sale of the old oven for 700	Capital income

Why misclassification matters

Treating a capital item as revenue expenditure lowers profit and understates assets. Treating a revenue item as capital raises profit and overstates assets.

Worked example 2: Thorncombe’s profit was first calculated as 21,400. The 350 installation cost had been charged as an expense, and the 120 repair had been added to the cost of the oven.

Step	Effect	Profit
Profit as first calculated		21,400
Installation was capital, so remove the expense	add 350	21,750
Repair was revenue, so charge it	deduct 120	21,630

Corrected profit is 21,630. This ignores any depreciation on the extra 350, which would be small by comparison.

Why non-current assets depreciate

A non-current asset is kept for use over several years, but it does not last for ever. Depreciation spreads the cost over the years in which the asset helps to earn revenue. Reasons for depreciation include:

• wear and tear from use, such as engine mileage or machinery running every day
• obsolescence, where newer technology makes the asset out of date even though it still works
• passage of time, for example a lease that runs out or an asset that deteriorates with age.

Depreciation is not a way of valuing the asset at its market price. It is a method of sharing out cost.

Depreciation is a non-cash expense

The cash leaves the business when the asset is bought. Each year’s depreciation charge moves no cash. It is an expense in the income statement, so it lowers profit, and it reduces the value at which the asset is shown. The bank balance does not change when the charge is posted, and no money is put aside by it.

The value shown for the asset is its cost less the total depreciation so far. This is often called net book value (NBV) or carrying amount. Both names mean the same thing.

Straight line method

The same amount is charged every year.

Annual charge = (cost − estimated residual value) ÷ estimated useful life in years.

Residual value is what the business expects to receive when the asset is no longer needed. A rate given as a percentage of cost produces the same result each year.

Reducing balance method

A fixed percentage is applied each year to the NBV at the start of that year. The charge is largest in year 1 and falls each year. It suits assets that lose value fastest when new, such as vehicles. Residual value is not deducted in the calculation: you apply the percentage to the NBV.

Worked example 3: straight line

Sellick Textiles buys a loom on 1 January Year 1 for 18,000. It expects the loom to last 5 years and be worth 3,000 at the end.

Annual charge = (18,000 − 3,000) ÷ 5 = 3,000.

Year	Charge	Provision at year end	NBV
1	3,000	3,000	15,000
2	3,000	6,000	12,000

Worked example 4: reducing balance

Sellick Textiles also buys a delivery van on 1 January Year 1 for 24,000 and uses 20% reducing balance.

Year	Opening NBV	Charge (20%)	Provision at year end	Closing NBV
1	24,000	4,800	4,800	19,200
2	19,200	3,840	8,640	15,360
3	15,360	3,072	11,712	12,288

Compare a straight line charge of 4,800 a year, which would have written off 14,400 over three years (a 5-year life and no residual value). Reducing balance has written off 11,712: the same in Year 1, then less each year.

Both methods should be used consistently from year to year. Switching methods without good reason makes profits harder to compare.

Entering depreciation: the provision for depreciation

Instead of reducing the asset account directly, the asset stays at cost. A separate account, the provision for depreciation, builds up the total depreciation. Each year you:

1. Debit the depreciation account and credit the provision for depreciation account with the year’s charge.
2. Transfer the depreciation account balance to the income statement (debit income statement, credit depreciation account).
3. Carry the provision forward as a credit balance.

The statement of financial position shows cost, less provision for depreciation, giving NBV.

Worked example 5: the loom accounts

Ledger entries for the loom in Example 3. Year 1 and Year 2 both end on 31 December.

Loom (non-current asset) account

Debit		Credit
Year 1 Bank	18,000	Year 1 Balance c/d	18,000
Year 2 Balance b/d	18,000

Provision for depreciation: loom

Debit		Credit
Year 1 Balance c/d	3,000	Year 1 Depreciation	3,000
Year 2 Balance c/d	6,000	Year 2 Balance b/d	3,000
		Year 2 Depreciation	3,000
Total	6,000	Total	6,000

The Year 2 balance b/d of 6,000 is on the credit side and appears in the next year’s accounts.

Year 2 statement of financial position extract (non-current assets):

	Cost	Provision for depreciation	NBV
Loom	18,000	6,000	12,000

The income statement for Year 2 shows depreciation of 3,000 as an expense.

Disposal of non-current assets

When an asset is sold you must remove its cost and its provision from the books and find the profit or loss on sale. A disposal account does this. Its layout:

• Debit: the asset account (cost of the asset).
• Credit: the provision for depreciation on that asset, and the sale proceeds.
• The balancing figure is the profit or loss on disposal.

If credits are less than the debit, the balancing figure goes on the credit side and is a loss. If credits are more, it goes on the debit side and is a profit. The balance is transferred to the income statement.

Check: profit or loss = sale proceeds − NBV at date of sale.

Worked example 6: a loss

Sellick Textiles sells a press that cost 15,000. Its provision for depreciation is 9,000 and it is sold for 4,100 by bank transfer.

Debit		Credit
Press at cost	15,000	Provision for depreciation	9,000
		Bank	4,100
		Loss on disposal (income statement)	1,900
Total	15,000	Total	15,000

Check: NBV was 6,000 and the press sold for 4,100, so there is a loss of 1,900.

Worked example 7: a profit

A different press cost 12,000, has a provision of 7,500 and sells for 5,200. NBV is 4,500, so there is a profit of 700.

Debit		Credit
Press at cost	12,000	Provision for depreciation	7,500
Profit on disposal (income statement)	700	Bank	5,200
Total	12,700	Total	12,700

Worked example 8: sale part way through a year

Equipment cost 8,000 on 1 January Year 1 and is depreciated at 10% of cost a year, charged for each month of ownership. It is sold on 30 June Year 4 for 5,000. The question will tell you the policy for the year of purchase and sale.

• Annual charge 800. Provision at 31 December Year 3 = 3 × 800 = 2,400.
• Charge for Year 4 up to the sale = 800 × 6/12 = 400. Provision at sale = 2,800.
• NBV = 8,000 − 2,800 = 5,200.
• Proceeds 5,000, so the loss on disposal is 200.

Post the 400 charge to the provision before you open the disposal account.

Common errors

• Debiting the disposal account with NBV rather than cost.
• Putting the profit or loss on the wrong side.
• Applying the reducing balance percentage to cost every year.
• Forgetting to add the part-year depreciation before a disposal.
• Treating sale proceeds as sales income.
• Showing the asset at cost in the statement of financial position with no provision.

Frequently asked questions

Are delivery and installation costs capital expenditure? Yes. Costs needed to get an asset ready for use, such as delivery, installation and legal fees, count as capital expenditure and are added to the cost of the asset.

What happens to profit if capital expenditure is treated as revenue? Treating a capital item as revenue expenditure lowers profit and understates assets. Treating a revenue item as capital does the opposite.

How is reducing balance depreciation calculated? A fixed percentage is applied each year to the net book value at the start of that year, so the charge is largest in the first year and falls each year after.

How do you find the profit or loss on disposal? Profit or loss = sale proceeds − net book value at the date of sale. In the disposal account, if the credits are less than the debit the balancing figure on the credit side is a loss; if they are more, the balancing figure on the debit side is a profit.

Why is the asset kept at cost with a separate provision for depreciation? The asset account stays at cost and the provision for depreciation account builds up the total depreciation to date. The statement of financial position then shows cost, less the provision, giving net book value.

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.