Book-Keeping and Accountancy · Ch 7 — Depreciation
Straight Line Method vs Written Down Value Method — A Comparison
7
Straight Line Method vs Written Down Value Method — A Comparison
A student is often asked to distinguish directly between the Straight Line Method and the Written Down Value Method, so it is worth setting the two side by side.
| Basis of distinction | Straight Line Method (SLM) | Written Down Value Method (WDV) |
|---|---|---|
| Base for calculating depreciation | Original cost of the asset (fixed, unchanging) | Book value at the start of each year (keeps reducing) |
| Amount of annual depreciation | Same (equal) every year | Reduces every year |
| Can book value reach zero? | Yes — it reaches exactly the estimated scrap value (which may be zero) at the end of useful life | No — mathematically it only approaches, never exactly reaches, zero |
| Effect on total yearly charge (depreciation + repairs) | Rises over time, as repair costs increase while depreciation stays fixed | Stays roughly level, as falling depreciation offsets rising repair costs |
| Ease of calculation | Simple — same figure every year | Comparatively more complex — the base changes every year |
| Suitability | Assets that lose value fairly evenly over time, or where the life and scrap value are known confidently (e.g., leases, furniture) | Assets that lose most of their value early and then more slowly (e.g., machinery, vehicles, computers); also the method recognised for income-tax purposes in India |
| Alternative names | Fixed Instalment Method, Original Cost Method | Diminishing Balance Method, Reducing Balance Method |
Definition 1Consistency (accounting principle)
The principle that once a firm adopts a particular method of depreciation for an asset, it should continue to apply the same method year after year, so that profits and asset values …
Definition 2Diminishing Balance Method
An alternative name for the Written Down Value Method, describing how the base on which depreciation is calculated (the book value) keeps 'diminish …