Q.A machine costing ₹75,000 is depreciated at 20% per annum under the Written Down Value Method. Find the depreciation for each of the first three years and the book value at the end of the third year.

Each year's depreciation is 20% of the PREVIOUS year's closing book value, never of the original cost.

75,000 × 20% = 15,000; 60,000 × 20% = 12,000; 48,000 × 20% = 9,600.

Working: Year 1 depreciation = 75,000 × 20% = 15,000, leaving a book value of 75,000 − 15,000 = 60,000. Year 2 depreciation is calculated on this NEW base of 60,000 (not on 75,000 again) = 60,000 × 20% = 12,000, leaving 48,000. Year 3 depreciation = 48,000 × 20% = 9,600, leaving 38,400.

Notice how the depreciation amount steadily falls (15,000 → 12,000 → 9,600) even though the rate itself never changes from 20% — that shrinking rupee figure on a fixed rate is the defining signature of the Written Down Value Method.

The most common slip is applying the 20% rate to the ORIGINAL cost every year, as under the Straight Line Method, instead of to the shrinking book value — that would wrongly repeat ₹15,000 every year and defeat the entire purpose of a 'diminishing balance' method.