Both straight line method and written down value method are of depreciation. We can calculate every year's depreciation either on the basis of straight line method or written down value method. But there are lots of differences between straight line method and written down value methods which we can tell on the following basis.
1. As per the Method :
As per straight line method, we calculate the depreciation with a fixed rate. Every year same depreciation is deducted from the fixed asset.
As per written down value method, we calculate the depreciation on original cost in first year. Next years' depreciation will be calculated on the amount which we got after deducting previous year depreciation. So, every year's depreciation amount will decrease.
2. Base of Calculation of Depreciation
In straight line method, we calculate depreciation on original cost of fixed asset.
In written down value method, we calculate the depreciation on the basis rest balance after deducting previous year depreciation.
3. Value of Fixed Asset at the End of its working Life
In straight line method, value of fixed asset at end of its working life will be zero because we deducted depreciation with the fixed amount.
In written down value method, it is not necessary value will be zero at the end of its working life.
We prove it with following simple graph.
4. Rate of Depreciation
The rate of depreciation in straight line method is calculated with following formula.
We calculate the rate of depreciation in written down value method with following formula.
5. Acceptance by Income Tax Law 1961
Straight line method is not accepted by income tax law 1961.
Written down value method is accepted by income tax law 1961 but rate on different fixed assets will be different and will be fixed by income tax authorities.
1. As per the Method :
As per straight line method, we calculate the depreciation with a fixed rate. Every year same depreciation is deducted from the fixed asset.
As per written down value method, we calculate the depreciation on original cost in first year. Next years' depreciation will be calculated on the amount which we got after deducting previous year depreciation. So, every year's depreciation amount will decrease.
2. Base of Calculation of Depreciation
In straight line method, we calculate depreciation on original cost of fixed asset.
In written down value method, we calculate the depreciation on the basis rest balance after deducting previous year depreciation.
3. Value of Fixed Asset at the End of its working Life
In straight line method, value of fixed asset at end of its working life will be zero because we deducted depreciation with the fixed amount.
In written down value method, it is not necessary value will be zero at the end of its working life.
We prove it with following simple graph.
4. Rate of Depreciation
The rate of depreciation in straight line method is calculated with following formula.
We calculate the rate of depreciation in written down value method with following formula.
5. Acceptance by Income Tax Law 1961
Straight line method is not accepted by income tax law 1961.
Written down value method is accepted by income tax law 1961 but rate on different fixed assets will be different and will be fixed by income tax authorities.
Excellent, One of the best explanations. Thank you sir.
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