Financial Accounting · Property, Plant and Equipment (AS 10)

Depreciation and Useful Life under AS 10

Updated 10 October 2026 · Fact-checked

Under AS 10, depreciation is the systematic allocation of an asset's depreciable amount (cost less residual value) over its useful life. Choose the method that matches how benefits are consumed, depreciate significant components separately, review useful life, residual value and method at each year-end, and treat changes as changes in accounting estimate.

Understand Depreciation and Useful Life under AS 10

An asset gives benefit over many years. Depreciation spreads its cost over those years so each year bears a fair share of the cost. AS 10 defines it as the systematic allocation of the depreciable amount of an asset over its useful life.

Depreciable amount is cost (or the amount substituted for cost) less residual value. Residual value is the amount you would currently get from disposing of the asset, after disposal costs, if it were already as old and worn as expected at the end of its useful life. Useful life is either the period for which the asset is expected to be available for use, or the number of production or similar units expected from it.

The method must follow the pattern in which the asset's future economic benefits are consumed. AS 10 names three methods: straight-line (constant charge if residual value does not change), diminishing balance (decreasing charge) and units of production (charge based on expected use or output). Once chosen, the method is applied consistently from period to period.

Land and buildings are separable assets and are accounted for separately, even if bought together. Land normally has an unlimited life and is not depreciated, with exceptions such as quarries and landfill sites. Buildings are depreciated. A rise in land value does not change the building's depreciable amount. Depreciation continues even if fair value exceeds carrying amount, as long as residual value does not exceed carrying amount. Repairs and maintenance do not remove the need to depreciate.

Component accounting follows the same idea. If a part of an asset has a cost that is significant compared with the total and a different useful life or pattern of benefit, depreciate that part separately. Reviews matter too: residual value and useful life are reviewed at least at each financial year-end, and the depreciation method is reviewed at least at each year-end. Changes are treated as changes in accounting estimate under AS 5, so they affect the current and future periods, not past years.

Key rules to remember

Depreciable amount: Depreciable amount = Cost − Residual value; Residual value is net of estimated disposal costs. Depreciation is charged on this amount.
Straight-line method: Annual depreciation = (Cost − Residual value) ÷ Useful life in years; Constant charge as long as residual value does not change. For part of a year, multiply by months of use ÷ 12.
Diminishing balance method: Depreciation for the year = Opening carrying amount × Rate %; Charge falls each year. Rate is applied on carrying amount, not on original cost.
Units of production method: Depreciation for the period = (Cost − Residual value) × Units produced in the period ÷ Total expected units; Here useful life is measured in units of output or use, not years.
Revised depreciation after a review: New annual depreciation = (Carrying amount at review date − Revised residual value) ÷ Remaining useful life; Applied prospectively as a change in accounting estimate under AS 5. Do not restate earlier years.
Zero depreciation rule: If residual value ≥ carrying amount, depreciation = 0; Depreciation resumes only if residual value later falls below carrying amount.
Revalued asset: Depreciation = (Revalued carrying amount − Residual value) ÷ Remaining useful life; After a revaluation, depreciate the revalued figure over the remaining life. Check residual value and life at the same time.
Component accounting: Total depreciation = Σ depreciation of each significant component + depreciation of the remaining parts; Each component uses its own cost, residual value, life and pattern.

How to solve Depreciation and Useful Life under AS 10 questions

Use this order for any question on depreciation and useful life under AS 10. It keeps your working clear, so you earn step marks even if one figure is wrong.

1Read the question and list: cost, date of purchase, residual value, useful life, method, and the year-end for which depreciation is wanted.
2Check what is depreciable. Separate land from building. Split out any component with a significantly different cost and life.
3Compute the depreciable amount for each item: cost less residual value.
4Select the method named in the question. If none is named, use the one that matches the consumption pattern (time, declining benefit, or output) and state your assumption.
5Apply the formula. For a part year, time-apportion from the date the asset is available for use, as the question states.
6If there is a review or revaluation, find the carrying amount at the review date. Then depreciate it over the remaining useful life with the revised residual value. Do not touch earlier years.
7State the nature of any change: a change in useful life, residual value or method is a change in accounting estimate under AS 5, effective prospectively.
8Show the journal or ledger extract if asked: Depreciation A/c Dr, to Asset (or Accumulated Depreciation) A/c, then transfer to Profit and Loss. End with the closing carrying amount.

Quickest way: Four-line check for MCQs and short numericals

When to use it: Use this for the 2-mark MCQs in Section A and for the first pass on any numerical, when you have only a minute or two.

Write Cost − Residual value = depreciable amount. Do this first, because many wrong options come from using full cost.
Match the method word to the formula: straight-line gives a constant charge, diminishing balance gives a falling charge on carrying amount, units of production gives output-based charge.
For a review or revision, compute carrying amount now, subtract revised residual value, divide by remaining life. Never recompute past years.
Eliminate options that restate prior years, depreciate land, or call a change of method a change in accounting policy. The standard treats it as a change in estimate.

Common mistakes in Depreciation and Useful Life under AS 10

Charging depreciation on full cost without deducting residual value in the straight-line method.
Students remember the percentage-on-cost approach and forget that AS 10 allocates the depreciable amount.
Fix: Always write the depreciable amount line first: cost less residual value. Then divide by useful life.
Restating earlier years when useful life, residual value or method is changed.
Students treat the change as an error correction or as a change in accounting policy.
Fix: AS 10 treats these as changes in accounting estimate under AS 5. Recalculate only from the review date, using the carrying amount and remaining life.
Depreciating land along with the building.
A composite purchase price is often given and students apply one rate to the whole.
Fix: Separate land and building. Land is not depreciated except in cases like quarries and landfill sites. Rising land value does not change the building's depreciable amount.
Using one life for an asset that has a significant component with a different life.
Students overlook the component details given in the question.
Fix: Split the asset. Compute depreciation for each component with its own cost, residual value and life, then add the totals.
Applying the diminishing balance rate to original cost every year.
Students mix it up with the straight-line method.
Fix: Apply the rate to the opening carrying amount each year, so the charge decreases.
Stopping depreciation because the asset's fair value is higher than its carrying amount, or because it is well maintained.
Students think depreciation measures fall in market value.
Fix: Depreciation allocates cost. It is still charged when fair value is higher, and repairs do not remove it, as long as residual value does not exceed carrying amount.

Worked examples

Example 1

Sundaram Engineering Ltd bought a machine on 1 April 2025 for ₹50,00,000. This includes an engine costing ₹20,00,000 with a useful life of 5 years and nil residual value. The rest of the machine (₹30,00,000) has a useful life of 10 years and residual value of ₹3,00,000. Using the straight-line method and component accounting, compute total depreciation for the year ended 31 March 2026 and the carrying amount at that date.

Show the solution

The engine is a significant component with a different life, so depreciate it separately.
Engine: depreciable amount = ₹20,00,000 − nil = ₹20,00,000. Depreciation = ₹20,00,000 ÷ 5 = ₹4,00,000.
Remaining machine: depreciable amount = ₹30,00,000 − ₹3,00,000 = ₹27,00,000. Depreciation = ₹27,00,000 ÷ 10 = ₹2,70,000.
Total depreciation = ₹4,00,000 + ₹2,70,000 = ₹6,70,000.
Carrying amount at 31 March 2026 = ₹50,00,000 − ₹6,70,000 = ₹43,30,000.
Entry: Depreciation A/c Dr ₹6,70,000 to Machinery (Accumulated Depreciation) A/c ₹6,70,000. Transfer ₹6,70,000 to Profit and Loss.

Answer: Total depreciation for 2025-26 is ₹6,70,000 (engine ₹4,00,000 plus rest of machine ₹2,70,000). Carrying amount on 31 March 2026 is ₹43,30,000.

Example 2

Kaveri Textiles Ltd bought equipment on 1 April 2023 for ₹10,00,000, with a useful life of 10 years and a residual value of ₹1,00,000, depreciated on the straight-line method. At the year-end review on 31 March 2026, management estimates the remaining useful life at 5 years and the residual value at ₹80,000. Compute depreciation for 2023-24 to 2025-26 and for 2026-27, and state the accounting treatment of the revision.

Show the solution

Original depreciable amount = ₹10,00,000 − ₹1,00,000 = ₹9,00,000.
Original annual depreciation = ₹9,00,000 ÷ 10 = ₹90,000 per year.
Depreciation charged for 3 years (2023-24, 2024-25, 2025-26) = ₹90,000 × 3 = ₹2,70,000.
Carrying amount at 31 March 2026 = ₹10,00,000 − ₹2,70,000 = ₹7,30,000.
Revised depreciable amount = ₹7,30,000 − ₹80,000 = ₹6,50,000.
Revised annual depreciation = ₹6,50,000 ÷ 5 = ₹1,30,000 from 2026-27.
Treatment: the change in useful life and residual value is a change in accounting estimate under AS 5. Earlier years are not restated. Disclose the effect as AS 5 requires.

Answer: Depreciation was ₹90,000 a year for the first three years. From 2026-27 it is ₹1,30,000 a year, applied prospectively as a change in accounting estimate, with no restatement of earlier years.

Exam tips

In MCQs, watch for the phrases 'change in accounting estimate' and 'prospectively'. Changes in useful life, residual value and depreciation method all follow this treatment under AS 10.
Always show the depreciable amount line. Examiners give step marks for it even if your final figure is wrong.
In composite questions, look for land plus building and for parts with different lives. These are signals for separate depreciation and component accounting.
State your assumptions when the question is silent, for example the method or the date from which the asset is available for use. Write them in one line.
In a written answer, give the formula, the working, the journal entry and the closing carrying amount in that order, then one line of interpretation.

Practice questions from Property, Plant and Equipment (AS 10)

Depreciation and Useful Life under AS 10: frequently asked questions

Is a change in depreciation method a change in accounting policy under AS 10?

No. AS 10 says that if the expected pattern of consumption of benefits has changed significantly, the method is changed to reflect it. This is accounted for as a change in accounting estimate under AS 5. Under AS 10, the review is made at least at each financial year-end.

How often should useful life and residual value be reviewed?

At least at each financial year-end. If expectations differ from earlier estimates, the change is accounted for as a change in accounting estimate under AS 5, so it affects the current and future periods.

How do I calculate depreciation on a revalued asset?

Take the revalued carrying amount, subtract the residual value, and divide by the remaining useful life. Depreciation from that date is charged on the revalued figure. Past depreciation is not changed.

Do I depreciate land?

Usually not. Land is a separate asset with an unlimited useful life, with exceptions such as quarries and landfill sites. Buildings are depreciated, and a rise in land value does not change the building's depreciable amount.

Can depreciation be zero for an asset still in use?

Yes, in one case. If the residual value rises to an amount equal to or greater than the carrying amount, the depreciation charge is zero. It resumes only if the residual value later falls below the carrying amount.