Question

Distinguish between straight line method and written down value method of calculating depreciation.

Answer 1

Straight line method	Written down value method
Depreciation is calculated on the original cost of an asset.	Depreciation is calculated on the reducing balance, i.e., the book value of an asset.
Equal amount of depreciation is charged each year over the useful life of the asset.	Diminishing amount of depreciation is charged each year over the useful life of the asset.
Book value of the asset becomes zero at the end of its effective life.	Book value of the asset can never be zero.
It is suitable for the assets such as patents, copyright, land and buildings which have lesser possibility of obsolescence and lesser repair charges.	It is suitable for assets which needs more repair in the later years such as plant and machinery, car.
As depreciation remains same over the years but repair cost increases in the later years, there will be unequal effect over the life of the asset.	As depreciation cost is high and repairs are less in the initial years but in the later years the repair costs increase and depreciation cost decreases, there will be equal effect over the life of the asset.
It is not recognized under the income tax act.	It is recognized under the income tax act.