Depreciation: A Threshold Concept in Accounting Education

This dissertation sets out to discover what makes depreciation such a troublesome concept for accounting students. Depreciation has been identified as a threshold concept (Land, et al., 2005; Meyer & Land, 2005) because of its troublesome nature. It requires students to view business activity in an unfamiliar way by matching costs to the revenue they generate. Its integrative nature connects depreciation to other key accounting concepts such as prudence, accruals and going concern, truly demonstrating accounting’s subjectivity which when grasped should prove transformational to students.

The main issue of troublesomeness is that depreciation is a term used in everyday parlance as assets fall in value as an effect of wear and tear, obsolescence, etc. This definition will be referred to as the naïve view. The accounting discipline’s definition, or the expert view, is much different as depreciation is the ‘systematic allocation of the depreciable amount of an asset over its useful life ’, thereby apportioning the cost of the asset over multiple accounting periods.

In order to examine depreciation in detail, the entire first year cohort of accounting students within a UK university were asked to explain depreciation in a short, written exercise. The data was coded against expert propositions to see if the students’ understanding was from a naïve or expert perspective. Perkins’ (1999 and 2006) work identifying five types of troublesome knowledge was then used as a framework for analysing the students’ work in more detail.

It was found that the vast majority of students understood depreciation from a naïve view. They displayed ritualised knowledge and had memorised depreciation formulas but were generally unable to display conceptual knowledge. Students seem to hold an absolutist view of accounting and do not recognise that there is subjectivity within the discipline.

This dissertation adds to the existing literature by examining a large cohort of accounting majors (not non-specialists) and using Perkins’ framework, thus examining depreciation in greater detail than seen to date. This has led to a reflection of how teaching can be improved in this area.