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  • Depreciation Sum-Pg1

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    Dip Kundu
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    1) The straight line method results in equal depreciation amounts each year until the asset is fully depreciated, while the diminishing balance method results in higher depreciation amounts in earlier years that decrease over time. 2) Under the straight line method, depreciation is calculated on the original cost of the asset, while under the diminishing balance method it is calculated on the asset's written-down value. 3) The diminishing balance method ensures some written-down value remains over the asset's useful life, while under the straight line method the written-down value reaches zero.

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    1) The straight line method results in equal depreciation amounts each year until the asset is fully depreciated, while the diminishing balance method results in higher depreciation amounts in earlier years that decrease over time. 2) Under the straight line method, depreciation is calculated on the original cost of the asset, while under the diminishing balance method it is calculated on the asset's written-down value. 3) The diminishing balance method ensures some written-down value remains over the asset's useful life, while under the straight line method the written-down value reaches zero.

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    14 views1 page

    Depreciation Sum-Pg1

    Uploaded by

    Dip Kundu
    1) The straight line method results in equal depreciation amounts each year until the asset is fully depreciated, while the diminishing balance method results in higher depreciation amounts in earlier years that decrease over time. 2) Under the straight line method, depreciation is calculated on the original cost of the asset, while under the diminishing balance method it is calculated on the asset's written-down value. 3) The diminishing balance method ensures some written-down value remains over the asset's useful life, while under the straight line method the written-down value reaches zero.

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    of 1

    DEPRECIATION, PBOV]SIONS AND RESERVES

    9.21
    Difference between Straight Line Method and Diminishing
    Barance Method
    tten Down l As per straight Line Method, the written-down
    value of the asset over its useful life becomes
    Llue at the b't,':99'Diminishing Balance Method, there must have been nil,
    losing some written-down value over its
    c useful life since the amount of depreciation graduaily
    Rs.
    a".**", yuar after year.
    However, the points of distinction between the two
    are:
    80,000 Straight Line Method Diminishing Balance Method
    1. Under this method amount of depre- l, Under this method amount
    64,000 ciation remains fixed vear after year of depre_
    ciation varies from year to year since it is
    which is written-off calculated on written-down value.
    51 ,200 2. Depreciation is calculated on the original 2. Depreciation is calculated on the
    cost of the asset. down value of the assets.
    40,960 3. The written-down value of the asset over 3. The written-down value of the asset can
    its useful life becomes nil since equal never be nil over its useful life.
    32,768 amount of depreclation is written_off for a
    fixed period.
    re (WDV) o1 4. The effect of depreciation on profit The effect of depreciation on profit varies
    10,000, Ioss remains same year after year since the from year to year since the amount is
    amount is fixed. variable.
    'the asset as 5. ln case of addition to assets, deprbciation ln case of addition, depreciation is not
    is ca lculated separately. separately calculated since it is computed
    on total written-down value of the assets.
    decrease in This method is mostly suitable for less This method is suitable for costlv assets
    costly assets, e.g. Furniture and Fixture viz., Plant and Machinery.
    and which depreciates due to effluxion of
    lenefit more
    time e.g. Patent, Trade-Marks, etc.
    rould reflect
    ortion of the 7. Usually a lower rate of percentage is to be Usually a higher rate of depreciation
    'iods than in taken into consideration for cllculating taken into consideration since it
    the amount of depreciation. calculated on W.D.V.
    tion are not
    lllustration 9.5
    * on .l.1.2000,
    a machine was purchased for Rs. 1,00,000. on 30.9.2002,
    was purchased for Rs. 20,000, installation expenses being Rs.
    a new machine
    re impact ol 5,000.
    Show the Machinery Account up to 3lst Dec.2003, assuming that the rate of depreciation
    was 107o on Reducing Balance Method.
    Solution
    rless the rate
    ln the books of ........
    Machinery Account
    :e the cost oi
    t of reduceo
    Date
    Cr.
    Amount
    2000 Rs. 2000
    s impossible -l-o Rs.
    Jan. i Bank A,/c 1,00,000 Dec. 31 By Depreciation
    o the written Nc 10,000
    Balance c/d 90,000
    1"00"000
    ilggm
    Contd.

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