Depreciation of tangible fixed assets under FRS 15
Understanding depreciation
Depreciation is all about the reduction in value that a tangible fixed asset goes through over time – from wear and tear, usage, or even obsolescence. In accounting terms, it’s how you spread the cost of an asset over its useful economic life, so your financial statements give a fair view of your business.
For accountants, depreciation’s a fundamental part of keeping your clients’ balance sheets and profit and loss accounts accurate. It shows how much of an asset’s future economic benefits have been used up during each accounting period, helping your clients or stakeholders understand the real picture.
What is FRS 15?
FRS 15 – Tangible Fixed Assets – came from the Financial Reporting Council (FRC) in 1999 to guide how companies should value, revalue, and depreciate tangible assets. It took effect for accounting periods commencing on or after 1 January 2000.
Even though it’s been replaced by FRS 102 in the UK and Republic of Ireland, FRS 15’s principles are still helpful for understanding how physical assets are treated in financial reporting and how to handle useful life, residual value, and depreciation policy consistently.
Depreciable amount of tangible fixed assets
Under FRS 15, the depreciable amount – that’s the cost minus any estimated residual value – should be spread systematically over the asset’s useful economic life. For tips on how UK accountants can prepare for a transformative 2025, check out these New Year’s resolutions for UK accountants.
The method you choose needs to reflect how the business actually uses the asset – whether that’s the straight line method or another approach. Depreciation charges usually show up as an expense in the profit and loss account, unless your accounting policies allow them to be included in the carrying amount of another asset.
Think of plant or machinery – it might be depreciated over five or ten years depending on how much it’s used and how often it’s maintained. It’s about giving a realistic view of your financial statements and keeping tax reporting in check.
What is the objective of depreciation?
Depreciation isn’t just about showing an asset has lost value. It’s about reflecting the cost of using it over time. Even if an asset goes up in market value, the economic benefits consumed still need to be accounted for each accounting period.
Regular depreciation charges help businesses:
- Show the true cost of physical assets
- Keep balance sheets consistent and fair
- Stay compliant with financial reporting standards and tax rules
- Give managers reliable info for investment decisions.
Determining the residual value, depreciation method and useful economic life
When setting a depreciation policy, you’ll want to consider:
- Expected usage – how much the asset is likely to be used
- Physical deterioration – wear and tear, plus expected maintenance
- Technological or economic obsolescence – for example, newer methods or tech that make the asset less useful
- Legal or contractual limits – lease terms or expiry dates that affect the asset’s life.
Once you’ve decided, apply the method consistently to assets in the same class, review periodically, and update if conditions change.
In summary, depreciation is more than a technical requirement – it’s about showing the real cost and usage of fixed assets in your financial statements.
Whether you’re working under FRS 15, FRS 102, or IFRS, the goal’s the same – match the cost to the benefits an asset provides, so management, investors, and auditors get a clear, consistent view.
