Depreciation

Definition

Depreciation is the decrease in an asset's value over time. Straight-line (simple) depreciation uses A = P(1 − in); reducing-balance (compound) depreciation uses A = P(1 − i)ⁿ.

Worked example

A R200 000 vehicle depreciating at 15% p.a. on reducing balance is worth 200000(0,85)⁴ ≈ R104 405 after 4 years.

Straight-line: a R12 000 laptop depreciating at 20% p.a. is worth 12 000(1 − 0,2 × 3) = R4 800 after 3 years.

Where it appears in the exam

Paper 1 asks for the book value of an asset, the depreciation rate or the time, using the straight-line or reducing-balance formula.

Step-by-step method

1. Identify the method: straight-line or reducing-balance.
2. Use A = P(1 − in) for straight-line.
3. Use A = P(1 − i)ⁿ for reducing-balance.
4. Use logarithms if the time n is unknown.

Common mistake

Using a plus sign as for growth: depreciation always uses (1 − i).

Related financial maths terms

• Compound interest
• Effective interest rate
• Annuity

Frequently asked questions

What does depreciation mean in Grade 12 Maths?

Depreciation is the decrease in an asset's value over time. Straight-line (simple) depreciation uses A = P(1 − in); reducing-balance (compound) depreciation uses A = P(1 − i)ⁿ.

Which NSC paper tests depreciation?

Depreciation belongs to the Financial maths section of CAPS Grade 12 Mathematics, which is examined in Paper 1.

How do I practise questions involving depreciation?

Snap a question that uses depreciation into the Snap&Learn AI solver, or work through the financial maths topic guide and NSC past papers.