Why is "Crediting depreciation to the asset account" a common mistake in Provision for Depreciation?

Why it happens: Thinking depreciation reduces the asset directly. How to avoid it: Credit the PROVISION for depreciation, not the asset. The asset account stays at cost. Source: 9706 Examiner Reports

Why is "Putting the provision balance on the debit side" a common mistake in Provision for Depreciation?

Why it happens: Forgetting it is a credit balance. How to avoid it: The provision is a credit balance (accumulated depreciation); the year's charge is credited to it. Source: 9706 Examiner Reports

Why is "Removing the whole provision on a single disposal" a common mistake in Provision for Depreciation?

Why it happens: Not isolating the disposed asset's depreciation. How to avoid it: Transfer only the DISPOSED asset's accumulated depreciation to the disposal account, not the whole balance. Source: 9706 Examiner Reports

Why is "Showing only the carrying value in the SOFP" a common mistake in Provision for Depreciation?

Why it happens: Skipping cost and accumulated depreciation. How to avoid it: Show cost, accumulated depreciation AND carrying value (three columns) for non-current assets. Source: 9706 Examiner Reports

Why is "Forgetting to add the current year's charge to the provision" a common mistake in Provision for Depreciation?

Why it happens: Only carrying the opening balance forward. How to avoid it: The closing provision = opening provision + this year's depreciation − depreciation on any asset disposed. Source: 9706 Examiner Reports

Why is "Charging all company depreciation to one expense heading" a common mistake in Provision for Depreciation?

Why it happens: Ignoring the allocation instruction. How to avoid it: Split the depreciation between distribution costs and administrative expenses as the question states. Source: 9706 Examiner Reports

Cambridge International A Levels Accounting (9706)

Provision for Depreciation

0% Complete

Detailed Study Notes

Detailed notes on Accounting for Non-Current Assets for Cambridge International A Levels Accounting, covering key concepts, explanations, examples, and exam-focused revision points.

Provision for Depreciation Account — Cambridge AS & A Level Accounting 9706 Study Notes (2026-2028)

How depreciation is actually recorded. Learn the double entry (debit depreciation expense, credit the provision), how to prepare and balance the provision for depreciation account year after year, and how the asset (at cost) and the provision (accumulated depreciation) appear in the financial statements to give the carrying value.

At a glance

Each year: Dr Depreciation (expense), Cr Provision for depreciation.
The non-current asset account stays at cost — depreciation does not touch it.
The provision for depreciation account accumulates all the depreciation charged (a credit balance).
Statement of profit or loss: the year's depreciation charge is an expense.
Statement of financial position: asset at cost LESS accumulated depreciation = carrying value.
The provision account is balanced off each year, growing by the annual charge.
On disposal, the asset's accumulated depreciation is removed from the provision (transferred to the disposal account).

What you’ll learn

Mapped to the Cambridge International A Level 9706 syllabus (2026-2028).

1.3.2 — Prepare ledger accounts and journal entries for depreciation.
1.3.2 — Record the effect of a charge for depreciation in the statement of profit or loss and statement of financial position.
Link 1.3.2 — the provision is reduced on disposal (transferred to the disposal account).

The double entry for depreciation

Debit the depreciation expense; credit the provision for depreciation.

Depreciation is recorded with this double entry each year:

	Dr	Cr
Depreciation (expense)	X
Provision for depreciation		X

The depreciation expense account is debited (it is an expense) and transferred to the statement of profit or loss.
The provision for depreciation account is credited, accumulating the total depreciation charged on the asset.

Crucially, the non-current asset account is left at cost — it is not reduced directly. Instead, the provision (a separate account) builds up the accumulated depreciation. The two are then netted off in the statement of financial position to give the carrying value.

This separation lets the statements show both the original cost and the accumulated depreciation of the asset.

Each year: Dr Depreciation (expense), Cr Provision for depreciation.
The asset account stays at cost (not reduced directly).
The provision account accumulates depreciation (a credit balance).
Asset at cost − provision = carrying value (in the SOFP).

See the full worked example for provision for depreciation →

Preparing the provision for depreciation account

It grows by the annual charge and is balanced off each year.

The provision for depreciation account is a running, accumulating account. Each year's depreciation is credited to it, and the balance carried down is the accumulated depreciation to date.

Example — a machine costing $50,000, depreciated at $9,000 a year (straight-line):

Dr	$	Cr	$
Balance c/d	9 000	Depreciation (Year 1)	9 000
	9 000		9 000
		Balance b/d	9 000
Balance c/d	18 000	Balance b/d	9 000
		Depreciation (Year 2)	9 000
	18 000		18 000
		Balance b/d	18 000

The balance b/d (a credit) is the accumulated depreciation, which is deducted from the asset's cost in the statement of financial position.

Each year's depreciation is credited to the provision.
The balance c/d (credit) = accumulated depreciation to date.
It grows by the annual charge each year.
The balance is deducted from cost in the SOFP.

See the full worked example for provision for depreciation →

Depreciation in the financial statements

The charge is an expense; accumulated depreciation reduces the asset to its carrying value.

Depreciation appears in both statements:

Statement of profit or loss:

The year's depreciation charge (e.g. $9,000) is an expense, reducing profit. It is usually included in distribution costs or administrative expenses depending on how the asset is used.

Statement of financial position (non-current assets):

	Cost $	Accumulated depreciation $	Carrying value $
Machine	50 000	18 000	32 000

The asset is shown at cost, with accumulated depreciation deducted, to give the carrying value ($32,000 after two years).

So the statement of profit or loss shows the cost of using the asset this year, while the statement of financial position shows the unexpired cost.

SOPL: the year's depreciation charge is an expense.
SOFP: cost − accumulated depreciation = carrying value.
Cost stays constant; accumulated depreciation grows.
The two statements show the year's cost and the unexpired cost.

The provision on disposal

When an asset is sold, its accumulated depreciation is removed from the provision.

When a non-current asset is sold, you must remove both the asset's cost (from the asset account) and its accumulated depreciation (from the provision account) — they are transferred to a disposal account (see the Disposal Account subtopic).

The double entry to remove the accumulated depreciation of the disposed asset:

	Dr	Cr
Provision for depreciation	X
Disposal account		X

This reduces the provision by the depreciation that related to the asset now sold, so the provision account always reflects only the depreciation of assets still owned.

Watch out: when several assets are depreciated through one provision account, only the disposed asset's accumulated depreciation is removed — not the whole balance.

On disposal, remove the asset's cost AND its accumulated depreciation.
Dr Provision for depreciation, Cr Disposal account (for the disposed asset's depreciation).
The provision then reflects only assets still owned.
Remove only the disposed asset's depreciation, not the whole provision.

See the full worked example for provision for depreciation →

Quick recap

Each year: Dr Depreciation (expense), Cr Provision for depreciation.
The asset account stays at cost; the provision accumulates depreciation.
Provision account balance b/d (credit) = accumulated depreciation.
SOPL: the year's charge is an expense; SOFP: cost − accumulated depreciation = carrying value.
On disposal, transfer the disposed asset's accumulated depreciation to the disposal account.
Remove only the disposed asset's depreciation, not the whole provision.

Memorise this

Verbatim phrases and definitions Cambridge mark schemes credit.

Dr Depreciation (expense); Cr Provision for depreciation.
The non-current asset account stays at COST.
Provision for depreciation = accumulated depreciation (a credit balance).
SOFP: cost − accumulated depreciation = carrying value.

How it’s examined

Frequently tested on Paper 2 and Paper 3: Prepare the journal entry for depreciation, Prepare the provision for depreciation account, and Show the non-current assets in the statement of financial position (commonly 3-6 marks, marked per correct entry). The 9706/22 (Feb-Mar 2024) Q2 asked for the depreciation journal and the provision for depreciation account.

Sources: Cambridge International AS & A Level Accounting 9706 syllabus (2026-2028); 9706/22 Paper 2 question paper & mark scheme, Feb/Mar 2024 (Q2); 9706 Examiner Reports, 2022-2024. Last reviewed 2026-06-17.

Take this whole topic with you

Step-by-step worked examples — Provision for Depreciation

Step-by-step solutions to past-paper-style questions on provision for depreciation, written exactly the way a tutor would explain them at the board.

Question type:

1Journal entry for depreciation (3 marks)
Getting startedMulti-step problem• 9706 Paper 2 style• journal, AO1
Question
A business charges $7,000 depreciation on its machinery for the year. Prepare the journal entry to record this (narrative not required). (3 marks)
Step-by-step solution
1. Step 1
  Depreciation is an expense → debit Depreciation $7,000.
2. Step 2
  The provision accumulates → credit Provision for depreciation – machinery $7,000.
3. Step 3
  The machinery (asset) account is not touched — it stays at cost.
Answer
Dr Depreciation $7,000; Cr Provision for depreciation – machinery$ 7,000.
Examiner tip
Credit the PROVISION, not the asset account. The asset stays at cost.
2Provision account over two years (5 marks)
Building confidenceMulti-step problem• provision, AO2
Question
A machine is depreciated by $6,000 per year. Prepare the provision for depreciation account for the first two years. (5 marks)
Step-by-step solution
1. Step 1
  Year 1: credit depreciation 6,000; balance c/d 6,000.
2. Step 2
  Year 2: balance b/d 6,000 (credit); credit depreciation 6,000; balance c/d 12,000.
3. Step 3
  The closing balance b/d after Year 2 is $12,000 (credit) — the accumulated depreciation.
Answer
Provision balance: $6,000 after Year 1,$ 12,000 after Year 2 (credit balances).
Examiner tip
Each year's depreciation is credited; the provision grows by the annual charge.
3Show the asset in the SOFP (4 marks)
Building confidenceMulti-step problem• SOFP, AO2
Question
Equipment cost $40,000. Accumulated depreciation at the year end is$ 15,000. Show how the equipment appears in the statement of financial position. (4 marks)
Step-by-step solution
1. Step 1
  Show cost $40,000.
2. Step 2
  Less accumulated depreciation $15,000.
3. Step 3
  Carrying value = 40,000 − 15,000 = $25,000.
Answer
Equipment: cost $40,000, accumulated depreciation$ 15,000, carrying value $25,000.
Examiner tip
Present cost, accumulated depreciation and carrying value (three columns).
4Depreciation in both statements (5 marks)
Building confidenceMulti-step problem• statements, AO2
Question
A vehicle costing $32,000 is depreciated at 25% reducing balance. In its second year, state (a) the depreciation charge, (b) where it appears in the statement of profit or loss, and (c) the carrying value in the statement of financial position. (5 marks)
Step-by-step solution
1. Step 1
  Year 1: 25% × 32,000 = 8,000 → CV 24,000.
2. Step 2
  Year 2 depreciation: 25% × 24,000 = $6,000.
3. Step 3
  (b) The $6,000 is an expense in the statement of profit or loss.
4. Step 4
  (c) Accumulated depreciation = 8,000 + 6,000 = 14,000; carrying value = 32,000 − 14,000 = $18,000.
Answer
(a) $6,000; (b) expense in SOPL; (c) carrying value$ 18,000 in SOFP.
Examiner tip
The charge goes to SOPL; the accumulated total reduces the asset in the SOFP.
5Provision for several assets (5 marks)
StretchMulti-step problem• provision, AO2
Question
Machinery is depreciated at 10% straight-line on cost. At 1 Jan the cost of machinery is $90,000 and the provision is$ 27,000. During the year no machinery was bought or sold. Prepare the provision for depreciation account for the year. (5 marks)
Step-by-step solution
1. Step 1
  Annual depreciation = 10% × 90,000 = 9,000.
2. Step 2
  Provision: balance b/d 27,000 (credit).
3. Step 3
  Add depreciation for the year 9,000 (credit).
4. Step 4
  Balance c/d = 27,000 + 9,000 = $36,000 (credit).
Answer
Provision: b/d 27,000 + depreciation 9,000 → balance c/d 36,000 (credit).
Examiner tip
Add the year's charge to the opening provision; both are credits.
6Remove depreciation on disposal (5 marks)
StretchMulti-step problem• disposal, AO2
Question
An asset that cost $20,000 with accumulated depreciation of$ 12,000 is sold. Prepare the entries in the provision for depreciation account to remove the depreciation on the disposed asset. (5 marks)
Step-by-step solution
1. Step 1
  The disposed asset's accumulated depreciation = $12,000.
2. Step 2
  Remove it from the provision: Dr Provision for depreciation $12,000.
3. Step 3
  Transfer it to the disposal account: Cr Disposal account $12,000.
4. Step 4
  The provision is reduced by $12,000, leaving only the depreciation of assets still owned.
Answer
Dr Provision for depreciation $12,000; Cr Disposal account$ 12,000.
Examiner tip
Only the DISPOSED asset's accumulated depreciation is transferred out.
7Provision account with a disposal (6 marks)
StretchMulti-step problem• provision, disposal, AO2
Question
At 1 Jan the provision for depreciation on machinery was $50,000. During the year, machinery with accumulated depreciation of$ 14,000 was sold, and the depreciation charge for the year was $11,000. Prepare the provision for depreciation account. (6 marks)
Step-by-step solution
1. Step 1
  Balance b/d 50,000 (credit).
2. Step 2
  Remove disposed asset's depreciation: Dr (Disposal) 14,000.
3. Step 3
  Add the year's charge: Cr (Depreciation) 11,000.
4. Step 4
  Balance c/d = 50,000 − 14,000 + 11,000 = $47,000 (credit).
Answer
Dr: Disposal 14,000 + Balance c/d 47,000; Cr: Balance b/d 50,000 + Depreciation 11,000.
Examiner tip
The disposal removes depreciation (debit); the year's charge adds it (credit).
8Why keep a separate provision account (4 marks)
StretchWord problem• provision, AO3
Question
Explain why depreciation is credited to a separate provision for depreciation account rather than credited directly to the non-current asset account. (4 marks)
Step-by-step solution
1. Step 1
  Keeping the asset at cost preserves the historic cost of the asset in the records.
2. Step 2
  The provision separately shows the accumulated depreciation to date.
3. Step 3
  This lets the statement of financial position show both the cost and the accumulated depreciation (and the carrying value).
4. Step 4
  It gives users more information than a single net figure would.
Answer
It preserves the asset at cost and separately shows accumulated depreciation, so the SOFP can show cost, accumulated depreciation and carrying value.
Examiner tip
The benefit is fuller disclosure: cost AND accumulated depreciation, not just a net figure.
9Allocate depreciation in a company (5 marks)
StretchMulti-step problem• allocation, AO2
Question
A company depreciates equipment costing $200,000 at 15% straight-line. The depreciation is allocated 70% to distribution costs and 30% to administrative expenses. Calculate the amount included in each. (5 marks)
Step-by-step solution
1. Step 1
  Annual depreciation = 15% × 200,000 = 30,000.
2. Step 2
  Distribution costs share = 70% × 30,000 = $21,000.
3. Step 3
  Administrative expenses share = 30% × 30,000 = $9,000.
Answer
Total depreciation $30,000:$ 21,000 to distribution costs, $9,000 to administrative expenses.
Examiner tip
In a company SOPL, depreciation is split between distribution and administrative expenses as instructed.
10Provision vs revaluation method (4 marks)
StretchWord problem• methods, AO2
Question
Explain why a provision for depreciation account is used for a machine but not for loose tools depreciated by the revaluation method. (4 marks)
Step-by-step solution
1. Step 1
  A machine is a single asset kept at cost, with depreciation accumulated separately in the provision account.
2. Step 2
  Loose tools are valued directly each year (revaluation method).
3. Step 3
  Under revaluation, the asset is shown at its closing valuation, not at cost less a provision.
4. Step 4
  So there is no accumulated depreciation to record separately — no provision account is needed.
Answer
A machine is held at cost with a separate provision; loose tools are carried at their year-end valuation, so no provision account is needed.
Examiner tip
The revaluation method values the asset directly, so no provision account arises.

Model Answers — Provision for Depreciation

High-scoring sample answers for provision for depreciation on the Cambridge IGCSE paper, with examiner-style notes mapping each response to the mark scheme and assessment objectives.

Question 1
9706 Paper 2 style3 marks
Q (3 marks). A business charges $9,500 depreciation on its vehicles for the year. Prepare the journal entry (narrative not required).
Model answer

Dr $ Cr $
Depreciation (expense) 9 500
Provision for depreciation – vehicles 9 500
Why this scores
Marking (point-based, 3). Dr Depreciation (1); Cr Provision for depreciation (1); correct figure/labels (1).
Question 2
9706 Paper 2 style3 marks
Q (3 marks). Machinery cost $75,000 and accumulated depreciation is$ 28,000. Show how the machinery appears in the statement of financial position.
Model answer

Cost $ Accumulated depreciation $ Carrying value $
Machinery 75 000 28 000 47 000
Why this scores
Marking (point-based, 3). Cost $75,000 (1); accumulated depreciation$ 28,000 (1); carrying value $47,000 (1).
Question 3
9706 Paper 2 style5 marks
Q (5 marks). Equipment is depreciated at $8,000 per year. At 1 January the provision for depreciation was$ 24,000. No equipment was bought or sold during the year. Prepare the provision for depreciation account for the year.
Model answer
Provision for depreciation – equipment

Dr $ Cr $
Balance c/d 32 000 Balance b/d 24 000
Depreciation 8 000
32 000 32 000
Balance b/d 32 000
Why this scores
Marking (point-based, 5). Balance b/d $24,000 credit (1); depreciation$ 8,000 credit (1); balance c/d $32,000 (2); b/d brought down (1).
Question 4
9706 Paper 2 style5 marks
Q (5 marks). A machine costing $60,000 is depreciated at 20% reducing balance. In the second year of ownership, state (a) the depreciation charge for the year and where it appears, and (b) the carrying value in the statement of financial position.
Model answer
Year 1: 20% × 60,000 = 12,000 → carrying value 48,000.

(a) Year 2 depreciation = 20% × 48,000 = $9,600, charged as an expense in the statement of profit or loss.

(b) Accumulated depreciation = 12,000 + 9,600 = 21,600. Carrying value = 60,000 − 21,600 = $38,400 in the statement of financial position.
Why this scores
Marking (point-based, 5). Year 1 CV $48,000 (1); Year 2 charge$ 9,600 (1); expense in SOPL (1); accumulated $21,600 (1); carrying value$ 38,400 (1).
Question 5
9706 Paper 2/3 style6 marks
Q (6 marks). At 1 January the provision for depreciation on machinery was $46,000. During the year, machinery with accumulated depreciation of$ 13,000 was sold, and the depreciation charge for the year was $10,000. Prepare the provision for depreciation account.
Model answer
Provision for depreciation – machinery

Dr $ Cr $
Disposal 13 000 Balance b/d 46 000
Balance c/d 43 000 Depreciation 10 000
56 000 56 000
Balance b/d 43 000
Why this scores
Marking (point-based, 6). Balance b/d $46,000 (1); disposal transfer$ 13,000 debit (2); depreciation $10,000 credit (1); balance c/d$ 43,000 (2). The disposal removes depreciation.
Question 6
9706 Paper 3 style6 marks
Q (6 marks). A company depreciates: delivery vehicles (cost $150,000) at 20% reducing balance, all charged to distribution costs; and office equipment (cost$ 80,000) at 10% straight-line, all charged to administrative expenses. Both were bought at the start of the previous year. Calculate the depreciation charged to distribution costs and to administrative expenses this year.
Model answer
Delivery vehicles (reducing balance):

Year 1: 20% × 150,000 = 30,000 → carrying value 120,000.

This year: 20% × 120,000 = $24,000 → to distribution costs.

Office equipment (straight-line):

10% × 80,000 = $8,000 each year → to administrative expenses.

Distribution costs: $24,000. Administrative expenses: $8,000.
Why this scores
Marking (point-based, 6). Vehicles Year 1 CV $120,000 (1) + this year$ 24,000 (2); equipment $8,000 straight-line (2); correct allocation to each heading (1).
Question 7
9706 Paper 3 style6 marks
Q (6 marks). Explain why a business records depreciation in a separate provision for depreciation account and keeps the non-current asset account at cost.
Model answer
Keeping the asset at cost. Recording the asset at its original cost preserves the historic cost information (historic cost concept) and shows users what was actually paid for the asset.

Using a separate provision. Crediting depreciation to a separate provision for depreciation account keeps a running total of the accumulated depreciation without disturbing the cost figure.

Benefit — fuller disclosure. Because cost and accumulated depreciation are kept separately, the statement of financial position can show all three figures — cost, accumulated depreciation and carrying value — rather than just a single net amount. This gives users more useful information about the age and remaining value of the assets.

On disposal. It also makes disposals easier: the disposed asset's cost and its accumulated depreciation can each be removed cleanly (to the disposal account), leaving the remaining assets correctly stated.
Why this scores
Marking (point-based, ~6). Asset at cost / historic cost (~1.5); separate provision = accumulated depreciation (~1.5); fuller disclosure of cost/accum dep/carrying value (~2); cleaner disposals (~1).
Question 8
9706 Paper 2/3 style5 marks
Q (5 marks). A business forgot to charge the year's depreciation of $12,000 on its machinery. Explain the effect on the financial statements.
Model answer
Statement of profit or loss. No depreciation expense was charged, so expenses are understated by $12,000 and profit is overstated by $12,000.

Statement of financial position.

The provision for depreciation is understated by $12,000, so the machinery's carrying value is overstated by $12,000.

The overstated profit flows into capital, so capital/net assets are overstated by $12,000.

The omission therefore overstates both profit and net assets, breaching the matching and prudence concepts.
Why this scores
Marking (point-based, 5). Expenses understated/profit overstated $12,000 (2); carrying value overstated (1.5); capital overstated (1); concepts breached (0.5).
Question 9
9706 Paper 2/3 style4 marks
Q (4 marks). Explain why no provision for depreciation account is needed when an asset is depreciated using the revaluation method.
Model answer
Under the revaluation method, the asset is valued directly at the end of each year, and that closing valuation is the figure shown in the statement of financial position.

Because the asset is carried at its year-end valuation rather than at cost less accumulated depreciation, there is no accumulated depreciation to record separately, so no provision for depreciation account is required. The depreciation (opening value + purchases − closing value) is simply charged as an expense.
Why this scores
Marking (point-based, 4). Asset shown at closing valuation (~2); no accumulated depreciation to track → no provision account (~2).
Question 10
9706 Paper 2/3 style6 marks
Q (6 marks). A machine cost $100,000 and is depreciated at 10% straight-line on cost. At 1 January Year 3 the provision for depreciation was$ 20,000 (two years' charges). Prepare (a) the depreciation journal for Year 3 and (b) the provision for depreciation account for Year 3.
Model answer
Annual depreciation = 10% × 100,000 = $10,000.

(a) Journal (Year 3)

Dr $ Cr $
Depreciation 10 000
Provision for depreciation – machinery 10 000

(b) Provision for depreciation – machinery (Year 3)

Dr $ Cr $
Balance c/d 30 000 Balance b/d 20 000
Depreciation 10 000
30 000 30 000
Balance b/d 30 000
Why this scores
Marking (point-based, 6). Annual $10,000 (1); journal Dr Depreciation / Cr Provision (2); provision account b/d$ 20,000 + charge $10,000 → c/d$ 30,000 (3).

	Dr $	Cr $
Depreciation (expense)	9 500
Provision for depreciation – vehicles		9 500

	Cost $	Accumulated depreciation $	Carrying value $
Machinery	75 000	28 000	47 000

Dr	$	Cr	$
Balance c/d	32 000	Balance b/d	24 000
		Depreciation	8 000
	32 000		32 000
		Balance b/d	32 000

Dr	$	Cr	$
Disposal	13 000	Balance b/d	46 000
Balance c/d	43 000	Depreciation	10 000
	56 000		56 000
		Balance b/d	43 000

	Dr $	Cr $
Depreciation	10 000
Provision for depreciation – machinery		10 000

Dr	$	Cr	$
Balance c/d	30 000	Balance b/d	20 000
		Depreciation	10 000
	30 000		30 000
		Balance b/d	30 000

Key Definitions and Keywords — Provision for Depreciation

Definitions to memorise and the exact keywords mark schemes credit for provision for depreciation answers — sharpened from recent examiner reports for the 2026 Cambridge IGCSE sitting.

Provision for depreciation account
Examiner keyword
A ledger account that accumulates the total depreciation charged on a non-current asset; it has a credit balance equal to the accumulated depreciation.
Depreciation (expense) account
Examiner keyword
The account debited with the year's depreciation charge, which is transferred to the statement of profit or loss as an expense.
Accumulated depreciation
Examiner keyword
The total depreciation charged on an asset to date; the credit balance on the provision account, deducted from cost in the SOFP.
Carrying value
Examiner keyword
Cost less accumulated depreciation — the value of the asset shown in the statement of financial position.
Transfer on disposal
Examiner keyword
On selling an asset, its accumulated depreciation is removed from the provision (Dr Provision, Cr Disposal account).
Allocation of depreciation
In a company, depreciation is split between distribution costs and administrative expenses according to how the asset is used.

Common Mistakes and Misconceptions — Provision for Depreciation

The traps other students keep falling into on provision for depreciation questions — taken from recent Cambridge IGCSE examiner reports and mark schemes — and how to avoid them.

✕Crediting depreciation to the asset account
9706 Examiner Reports
Why it happens
Thinking depreciation reduces the asset directly.
How to avoid it
Credit the PROVISION for depreciation, not the asset. The asset account stays at cost.
✕Putting the provision balance on the debit side
9706 Examiner Reports
Why it happens
Forgetting it is a credit balance.
How to avoid it
The provision is a credit balance (accumulated depreciation); the year's charge is credited to it.
✕Removing the whole provision on a single disposal
9706 Examiner Reports
Why it happens
Not isolating the disposed asset's depreciation.
How to avoid it
Transfer only the DISPOSED asset's accumulated depreciation to the disposal account, not the whole balance.
✕Showing only the carrying value in the SOFP
9706 Examiner Reports
Why it happens
Skipping cost and accumulated depreciation.
How to avoid it
Show cost, accumulated depreciation AND carrying value (three columns) for non-current assets.
✕Forgetting to add the current year's charge to the provision
9706 Examiner Reports
Why it happens
Only carrying the opening balance forward.
How to avoid it
The closing provision = opening provision + this year's depreciation − depreciation on any asset disposed.
✕Charging all company depreciation to one expense heading
9706 Examiner Reports
Why it happens
Ignoring the allocation instruction.
How to avoid it
Split the depreciation between distribution costs and administrative expenses as the question states.

Provision for Depreciation

Detailed Study Notes

At a glance

What you’ll learn

Quick recap

Memorise this

How it’s examined

Take this whole topic with you

1Journal entry for depreciation (3 marks)

2Provision account over two years (5 marks)

3Show the asset in the SOFP (4 marks)

4Depreciation in both statements (5 marks)

5Provision for several assets (5 marks)

6Remove depreciation on disposal (5 marks)

7Provision account with a disposal (6 marks)

8Why keep a separate provision account (4 marks)

9Allocate depreciation in a company (5 marks)

10Provision vs revaluation method (4 marks)

Provision for depreciation account

Depreciation (expense) account

Accumulated depreciation

Carrying value

Transfer on disposal

Allocation of depreciation

✕Crediting depreciation to the asset account

✕Putting the provision balance on the debit side

✕Removing the whole provision on a single disposal

✕Showing only the carrying value in the SOFP

✕Forgetting to add the current year's charge to the provision

✕Charging all company depreciation to one expense heading