its about depreciation information

1. Methods of Depreciation
• Straight Line Method
• Written Down Value Method
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2. Straight Line Method
It is a very popular method because its simplicity & consistency.
A fixed amount of original cost is charged as a depreciation every year.
Annual depreciation = Cost of the assets – Residual value
Estimated Economic life
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3. Straight Line Method
Advantages
• It is simple to calculate &
easy to understand.
• It can reduce the book value
of the asset to zero.
• The valuation of the asset
each year in the balance
sheet is reasonably fair.
Disadvantages
• It ignores the fact that the
service yielding ability of
the asset fall while the
repairs & maintenance cost
increase with the passage of
time.
• If an additional asset is
acquired, the amount to be
charged as depreciation
needs to be calculated.
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4. Written Down Value Method
• Amount of depreciation goes on declining
every year and is recognized by income tax
law.
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5. Estimation of Written Down Value
Method
Advantages
• Easy calculation.
• Balanced effect on Profit &
Loss account in different
years.
• Approved method by
Income tax authorities.
• Logical method.
• Suitable for assets having
long life.
Disadvantages
• The value of asset can not
be reduced to zero.
• No funds for replacement.
• Loss of interest.
• Higher rate of depreciation.
• In equal burden on Profit &
Loss account.
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6. Difference between WDV & SLM
Method
Bases of Difference
1.
Basis of charging
depreciation
2.
Total charge against
profit and loss
account in respect of
depreciation and
Written Down Value
Book value
Fixed year
Declines year after year.
Unequal year after year.
Almost equal every year.
Not recognized
Recognized
It is suitable for assets in
which repair charges are
less, the possibility of and
obsolescence is low scrap
value depends upon the
time period involved.
It is suitable for assets,
which are affected by
technological changes and
require more repair
expenses with passage of
time.
Annual depreciation
3.
Straight Line Method
Original Cost
4.
repair
Recognition by
income Tax
5.
Suitability
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