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Chapter 7 · Lesson 2 of 5 · ⏱ 35 min

Straight Line and Written Down Value Methods

🎯 After this lesson you will be able to:
  • Calculate depreciation and its rate by the straight line method
  • Calculate depreciation year by year by the written down value method
  • Charge depreciation for part of a year when an asset is bought mid-year
  • Compare the two methods and choose the right one for an asset

In the last lesson we learnt what depreciation is. Today we learn how much. There are two main methods used in India: the Straight Line Method (SLM) and the Written Down Value Method (WDV). One charges the same amount every year; the other charges a lot in the early years and less later. By the end of today you will be able to build a depreciation table for any asset, including one bought in the middle of the year, which is where most students lose marks.

1. Two methods, one idea

Both methods spread the cost of an asset over its useful life. They differ in the base on which the percentage is applied:

  • SLM: a fixed percentage of the original cost every year → the same amount each year.
  • WDV: a fixed percentage of the book value at the start of each year → a smaller amount each year.

NCERT also mentions other methods (annuity, depreciation fund, insurance policy, sum of years’ digits, double declining balance), but SLM and WDV are the ones used in practice and asked in exams. The method chosen depends on the type of asset, the nature of its use and the circumstances of the business, and under AS-6 it must be applied consistently year after year; it can be changed only in special circumstances.

2. Straight Line Method (SLM)

SLM assumes that the asset is used equally in every year of its life. So an equal amount is charged every year. If you plot the yearly depreciation on a graph, you get a flat straight line, hence the name. It is also called the fixed instalment method or the fixed percentage on original cost method.

Annual depreciation = (Cost − Estimated net residual value) ÷ Estimated useful life

Rate of depreciation (%) = (Annual depreciation ÷ Cost) × 100

Sharma Traders buys a delivery van on 1 April 2026 for ₹5,00,000 (including registration). Its net residual value after 5 years is estimated at ₹50,000. Find the annual depreciation and the rate by SLM, and prepare a depreciation table for 5 years. Books close on 31 March.
  1. Annual depreciation = (5,00,000 − 50,000) ÷ 5 = 4,50,000 ÷ 5 = ₹90,000.
  2. Rate = 90,000 ÷ 5,00,000 × 100 = 18% (on original cost).
  3. YearOpening book value (₹)Depreciation (₹)Closing book value (₹)
    2026-275,00,00090,0004,10,000
    2027-284,10,00090,0003,20,000
    2028-293,20,00090,0002,30,000
    2029-302,30,00090,0001,40,000
    2030-311,40,00090,00050,000
    Total4,50,000
Depreciation ₹90,000 every year at 18% on cost. After 5 years the van stands at exactly its residual value of ₹50,000, and total depreciation equals the depreciable cost of ₹4,50,000.

The rate under SLM is calculated on the cost (₹5,00,000), not on the depreciable cost (₹4,50,000). 90,000 ÷ 4,50,000 = 20% is a common wrong answer.

A machine is bought for ₹3,60,000 and ₹40,000 is spent on its installation. Its net residual value after 8 years is ₹40,000. What is the rate of depreciation (%) under SLM?

Cost = 4,00,000. Annual depreciation = (4,00,000 − 40,000) ÷ 8.
Cost = 3,60,000 + 40,000 = 4,00,000. Annual depreciation = 3,60,000 ÷ 8 = ₹45,000. Rate = 45,000 ÷ 4,00,000 × 100 = 11.25%.

2.1 Advantages of SLM

  • Very simple to understand and apply, so it is popular.
  • The asset can be written down exactly to its residual value (or to zero), so the full depreciable cost is recovered over the life.
  • The same charge every year makes profits of different years easy to compare.
  • Suitable where the useful life can be estimated accurately and the use is uniform, e.g. leasehold buildings, patents.

2.2 Limitations of SLM

  • It assumes equal usefulness every year, which is not true in real life: an asset gives more service when new.
  • As the asset ages, efficiency falls and repair costs rise. Under SLM, depreciation stays the same while repairs grow, so the total burden (depreciation + repairs) on the Profit and Loss Account keeps increasing year after year.

3. Depreciation for part of a year

Assets are not always bought on the first day of the accounting year. Unless the question says otherwise, charge depreciation only for the months the asset was used in the first year (and in the year of sale).

Depreciation for part of a year = Annual depreciation × (Months used ÷ 12)

A machine costing ₹2,40,000 is bought on 1 October 2026. Depreciation is 10% p.a. on original cost. Books close on 31 March every year. Find depreciation for 2026-27 and 2027-28.
  1. Annual depreciation = 10% of 2,40,000 = ₹24,000.
  2. 2026-27: used from 1 Oct 2026 to 31 Mar 2027 = 6 months → 24,000 × 6/12 = ₹12,000.
  3. 2027-28: full year → ₹24,000.
2026-27: ₹12,000; 2027-28: ₹24,000

Count months like this: from the date of purchase to the date the books close. 1 Oct to 31 Mar = Oct, Nov, Dec, Jan, Feb, Mar = 6. 1 July to 31 March = 9. 1 January to 31 March = 3.

Furniture costing ₹1,20,000 is bought on 1 January 2027. Depreciation is 15% p.a. on original cost; books close on 31 March. What is the depreciation for 2026-27 (in ₹)?

Months used = January, February, March.
Annual = 15% of 1,20,000 = 18,000. For 3 months = 18,000 × 3/12 = ₹4,500.

4. Written Down Value Method (WDV)

Under WDV, a fixed percentage is applied every year on the book value at the beginning of that year (cost less depreciation charged till then). Because the book value keeps shrinking, the depreciation also shrinks. It is also called the reducing balance, diminishing balance or reducing instalment method.

Think of a new scooter. In the first year its price falls the most; after a few years it falls only a little each year. WDV copies this pattern: big charge early, smaller charge later, based on the idea that the asset gives more benefit when it is new.

Khanna Engineering buys a machine on 1 April 2026 for ₹4,00,000. Depreciation is charged at 20% p.a. on written down value. Find depreciation for the first three years.
  1. 2026-27: 20% of 4,00,000 = ₹80,000 → WDV = 3,20,000.
  2. 2027-28: 20% of 3,20,000 = ₹64,000 → WDV = 2,56,000.
  3. 2028-29: 20% of 2,56,000 = ₹51,200 → WDV = 2,04,800.
  4. YearOpening WDV (₹)Depreciation @ 20% (₹)Closing WDV (₹)
    2026-274,00,00080,0003,20,000
    2027-283,20,00064,0002,56,000
    2028-292,56,00051,2002,04,800
    Total1,95,200
Depreciation: ₹80,000, ₹64,000, ₹51,200. Book value after 3 years ₹2,04,800.

A generator is bought for ₹5,00,000 on 1 April 2026. Depreciation is 10% p.a. on the written down value. What is the depreciation for the third year, 2028-29 (in ₹)?

Year 1: 50,000 → 4,50,000. Year 2: 45,000 → ?
Year 1: 50,000 (WDV 4,50,000). Year 2: 45,000 (WDV 4,05,000). Year 3: 10% of 4,05,000 = ₹40,500.

4.1 WDV with a mid-year purchase

A printing machine costing ₹2,00,000 is bought on 1 July 2026. Depreciation is 20% p.a. on WDV. Books close on 31 March. Prepare a depreciation table for three years.
  1. 2026-27 (9 months: July to March): 2,00,000 × 20% × 9/12 = ₹30,000 → WDV 1,70,000.
  2. 2027-28 (full year): 20% of 1,70,000 = ₹34,000 → WDV 1,36,000.
  3. 2028-29 (full year): 20% of 1,36,000 = ₹27,200 → WDV 1,08,800.
Depreciation ₹30,000; ₹34,000; ₹27,200. WDV on 31 March 2029 = ₹1,08,800.

In a mid-year purchase, the time fraction (9/12) is used only in that first year. From the second year onward, apply the full rate to the new opening WDV. Do not keep multiplying by 9/12.

4.2 Finding the WDV rate

If the cost, residual value and life are given, the WDV rate that brings the asset down to its residual value exactly at the end of its life is:

R = [1 − (s ÷ c)1/n] × 100

R = rate of depreciation (%), n = useful life in years, s = residual (scrap) value, c = cost of the asset. (s ÷ c)1/n means the n-th root of s ÷ c.

An asset costs ₹5,00,000. Its residual value after 5 years is estimated at ₹1,63,840. Find the WDV rate.
  1. s ÷ c = 1,63,840 ÷ 5,00,000 = 0.32768.
  2. Fifth root of 0.32768 = 0.8 (because 0.8 × 0.8 × 0.8 × 0.8 × 0.8 = 0.32768).
  3. R = (1 − 0.8) × 100 = 20%.
Rate = 20% p.a. on written down value

4.3 Advantages and limitations of WDV

  • Based on a more realistic idea: an asset gives more benefit in its early years, so more is charged then.
  • Depreciation falls while repairs rise, so the total of depreciation + repairs stays almost equal every year.
  • The Income Tax Act accepts this method for tax purposes.
  • A large part of the cost is written off early, so loss from obsolescence is reduced; suitable for assets like plant and machinery, vehicles and computers.
  • Limitations: the asset can never be written down to zero, since a percentage of a positive number is always less than the number; and it is difficult to decide a suitable rate.

5. Play with depreciation

Change the cost, rate and number of years below and watch how the SLM and WDV figures move. Notice the flat line of SLM and the falling curve of WDV.

6. SLM vs WDV: the burden on profit

A machine costs ₹1,00,000. Repair costs are expected to be ₹2,000, ₹5,000 and ₹8,000 in the first three years. Compare the total yearly charge (depreciation + repairs) under (a) SLM at 10% on cost and (b) WDV at 20%.
  1. SLM depreciation = ₹10,000 every year.
  2. WDV depreciation: 20,000 (WDV 80,000), 16,000 (WDV 64,000), 12,800.
  3. YearRepairs (₹)SLM dep. (₹)SLM total (₹)WDV dep. (₹)WDV total (₹)
    12,00010,00012,00020,00022,000
    25,00010,00015,00016,00021,000
    38,00010,00018,00012,80020,800
Under SLM the total charge rises (12,000 → 18,000). Under WDV it stays nearly level (22,000 → 20,800). This is why WDV suits assets whose repairs grow with age.

7. Comparison table (a favourite board question)

BasisStraight Line MethodWritten Down Value Method
1. Basis of chargingOriginal costBook value at the start of the year (cost less depreciation till date)
2. Annual chargeFixed, same every yearHighest in the first year, falls every year
3. Depreciation + repairsUnequal; rises in later yearsAlmost equal every year
4. Income tax lawNot recognisedRecognised
5. Book value at endCan become zero or exactly the scrap valueNever becomes zero
6. SuitabilityAssets with low repairs and low risk of obsolescence, e.g. leasehold buildings, patents, trademarksAssets affected by technology and needing more repairs with age, e.g. plant and machinery, vehicles
Under which situation will the book value of an asset never become zero?
  • SLM with no residual value
  • SLM at 25% for 4 years
  • Any method, if the asset is repaired regularly
  • WDV method at any rate below 100%
Under WDV, each year only a percentage of the remaining balance is written off, so some balance always remains.
A company’s management does not want the total of depreciation and repair charges to rise in the later years of a machine’s life. Which method should it use?
  • Straight line method
  • Written down value method
  • No depreciation, only repairs
  • Either; both give the same total
Under WDV, depreciation falls as repairs rise, keeping the total nearly equal each year.

SLM = Same amount on Starting cost. WDV = Working on the Written-down (remaining) value. In any answer, always show the working: cost, rate, months, then amount.

📌 Points to remember (Quick Revision)

  • SLM: annual depreciation = (Cost − Residual value) ÷ Life; rate = annual depreciation ÷ cost × 100; same amount every year.
  • WDV: a fixed % of the opening book value each year; amount falls every year; value never reaches zero.
  • Part-year: multiply by months used ÷ 12, only in the year of purchase (or sale).
  • WDV rate formula: R = [1 − (s ÷ c)^(1/n)] × 100.
  • SLM total (depreciation + repairs) rises over time; WDV total stays nearly equal; income tax law recognises WDV.
  • SLM suits leasehold buildings, patents; WDV suits plant, machinery, vehicles.

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