Elements of Accountancy · Ch 8 — Depreciation, Provisions and Reserves
Total Charge Against Profit and Loss Account on Account of Depreciation and Repair Expenses
Total Charge Against Profit and Loss Account on Account of Depreciation and Repair Expenses
The Total Charge Against Profit and Loss: Depreciation + Repairs
The key idea in this section is that the total burden on the Profit and Loss account each year is not just depreciation — it is depreciation plus the cost of repairs and maintenance. The choice of depreciation method affects how this total behaves over the asset's life.
The Pattern of Repair Expenses
It is a well-established fact that repair and maintenance expenses are not constant. They are low in the early years of an asset's life and increase steadily as the asset grows older. A new machine rarely needs major repairs; an old one breaks down often.
Effect Under the Straight Line Method (SLM)
Under SLM, the annual depreciation charge is fixed — the same amount every year. But repair expenses rise over time. Therefore, the total charge (depreciation + repairs) is not constant. It is lower in the early years and higher in the later years. The total burden on the Profit and Loss account increases year after year.
A common mistake is to think SLM gives a constant total charge. It does not. Only the depreciation part is constant; the repair part grows, so the total grows.
Effect Under the Written Down Value Method (WDV)
Under WDV, the depreciation charge itself declines each year (because it is calculated on the diminishing book value). Meanwhile, repair expenses increase. These two opposite movements tend to offset each other. The result is that the total charge (depreciation + repairs) remains roughly similar, or nearly equal, year after year.
This is a major advantage of the WDV method over SLM. WDV produces a more uniform total charge against profit, which is considered more equitable from the viewpoint of matching costs with revenue.
Summary of the Comparison
| Aspect | Straight Line Method (SLM) | Written Down Value Method (WDV) |
|---|---|---|
| Depreciation charge | Fixed (constant) each year | Declines each year |
| Repair expenses | Increase in later years | Increase in later years |
| Total charge (Depreciation + Repairs) | Increases in later years | Remains similar/equal year after year |
Accounting Treatment
The accounting treatment for both depreciation and repairs is straightforward: …