Question

The amount of depreciation under straight line method vis-vis written down value method, when the rate of depreciation is same, would be:

• A. Equal in all years
• B. Equal in the first year but higher is subsequent years
• C. Equal in the first year but lower in subsequent years
• D. Lower in the first year but equal in subsequent years

Answer 1

The correct option is B Equal in the first year but higher is subsequent years

There are two most commonly used method of depreciation i.e., the Straight-line method and the written down value method.

Under the straight-line method of depreciation, a fixed and equal amount of depreciation, calculated at a fixed percentage on the original cost of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset.

Under the written down value method, depreciation calculated at a fixed percentage on the original cost (in the first year) and on the written down value, (in subsequent years) of a fixed depreciable asset is written off during each accounting period over the expected useful life of the asset.

Under this method, the rate of depreciation remains constant year after year whereas the amount of depreciation goes on decreasing.

From the above definitions, it is concluded that depreciation under SLM and WDV when the rate of depreciation is the same, would be equal in the first year but higher in subsequent years.