CLASS 11 ACCOUNTANCY CA FOUNDATION DEPRECIATION

Depreciation in Accounting: Straight Line Method vs Written Down Value Method (With Examples)

Learn the difference between Straight Line Method (SLM) and Written Down Value Method (WDV) with formulas, solved examples, journal entries, comparisons and common exam mistakes.

Fri Sep 4, 2026

Introduction

Every business that owns fixed assets — machinery, furniture, vehicles, computers — faces one certainty: these assets lose value over time.

In accounting, this gradual, permanent fall in the value of a fixed asset due to use, wear and tear, or obsolescence is called depreciation. It is one of the first major concepts introduced in Class 11 Accountancy and forms the base of several CA Foundation and CA Intermediate accounting problems.

This article explains what depreciation is, why it is charged, and compares the two most commonly tested methods of calculating it — Straight Line Method (SLM) and Written Down Value Method (WDV) — using formulas, a numerical example and the accounting entries involved.

By the end of this article, you will be able to:

Identify the correct depreciation method, apply the appropriate formula, calculate depreciation confidently and distinguish between SLM and WDV in exam questions.

What Is Depreciation and Why Is It Charged?

Depreciation is the systematic allocation of the cost of a fixed asset over its useful life.

It is not a cash expense — no money leaves the business when depreciation is recorded — but it is still charged to the Profit and Loss Account because of the matching concept.

The cost of the asset must be matched against the revenue it helps generate, year after year.

Causes of Depreciation

Cause	Explanation
Wear and Tear	Physical deterioration from regular use, such as a delivery van losing efficiency after years on the road.
Efflux of Time	Assets lose value simply with the passage of time, even with careful use.
Obsolescence	Technological change makes older assets outdated — for example, older computer systems being replaced by faster models.
Depletion	Applicable to natural resources like mines and quarries that reduce in quantity as they are extracted.
Accidents	Sudden damage, though this is usually treated separately as an abnormal loss rather than routine depreciation.

Straight Line Method (SLM)

Under the Straight Line Method, also called the Fixed Instalment Method, an equal amount of depreciation is charged every year over the useful life of the asset.

This makes it the simplest and most predictable method of depreciation.

Formula

Annual Depreciation = (Cost of Asset − Estimated Scrap Value) ÷ Estimated Useful Life

(in years)

Because the depreciation amount is constant, the asset's book value declines in a straight line when plotted on a graph — hence the name.

Key Point: Under SLM, the depreciation amount remains the same every year, assuming the useful life and scrap value remain unchanged.

Written Down Value Method (WDV)

Under the Written Down Value Method, also called the Diminishing Balance Method, depreciation is charged as a fixed percentage on the asset's book value at the beginning of each year.

The calculation is therefore made on the opening book value and not on the original cost of the asset.

Formula

Depreciation for the Year = Book Value at the Start of the Year × Rate of Depreciation (%)

This means the depreciation amount is highest in the first year and keeps reducing every year after that.

Important for Taxation:

The WDV method is also the method prescribed under the Income Tax Act, 1961 for computing depreciation on block of assets for most businesses, which is one reason it is widely tested in taxation papers as well.

Solved Example: SLM vs WDV Side by Side

A company purchases machinery for ₹5,00,000 on April 1, 2023. Estimated useful life is 5 years and estimated scrap value is ₹50,000.

Under WDV, assume a depreciation rate of 15% per annum. Financial year ends March 31.

Year	SLM Depreciation (₹)	SLM Book Value at Year End (₹)	WDV Depreciation (₹)	WDV Book Value at Year End (₹)
2023–24	90,000	4,10,000	75,000	4,25,000
2024–25	90,000	3,20,000	63,750	3,61,250
2025–26	90,000	2,30,000	54,188	3,07,063
2026–27	90,000	1,40,000	46,059	2,61,003
2027–28	90,000	50,000	39,150	2,21,853

Note: SLM depreciation = (₹5,00,000 − ₹50,000) ÷ 5 = ₹90,000 per year, and the book value exactly reaches the scrap value of ₹50,000 at the end of year 5.

Under WDV, depreciation is charged at 15% of the opening book value each year and, by design, the book value never reduces to exactly zero — this is a key conceptual difference students must remember.

Journal Entries for Depreciation

Regardless of the method used, the accounting entry to record depreciation remains the same.

Transaction	Journal Entry
Charging depreciation	Depreciation A/c Dr. To Asset A/c (or To Provision for Depreciation A/c)
Transferring depreciation to P&L	Profit and Loss A/c Dr. To Depreciation A/c

Key Differences Between SLM and WDV

Basis	Straight Line Method	Written Down Value Method
Basis of calculation	Original cost of the asset	Book value at the start of each year
Annual depreciation amount	Same every year	Decreases every year
Book value at end of useful life	Can be reduced to zero or scrap value	Never reduces to exactly zero
Suitability	Assets with uniform use, e.g. furniture, buildings	Assets that lose efficiency faster in early years, e.g. machinery, vehicles
Recognition under Income Tax Act	Not generally accepted for tax computation	Prescribed method for most block of assets
Impact on P&L over the years	Depreciation charge constant; repair costs usually rise later, so total charge (dep. + repairs) rises over time	Depreciation charge and repair costs together stay relatively even over the years

Common Mistakes Students Make

Applying the WDV rate to the original cost instead of the opening book value of that year.
Forgetting to deduct scrap value while calculating SLM depreciation.
Not adjusting depreciation for part of the year when an asset is purchased or sold mid-year.
Confusing Provision for Depreciation Account treatment with direct reduction of the asset account.
Assuming WDV book value will become zero. It mathematically approaches, but does not reach, zero.

Exam Tip:

Before calculating depreciation, first identify whether the question requires depreciation on original cost or on the opening book value.

Practical Application in Real Business

Indian companies choose SLM or WDV depending on the nature of the asset and financial reporting needs.

For example, a textile mill may use WDV for machinery because newer machines are far more productive than older ones — matching higher depreciation with the years of highest output.

On the other hand, a company depreciating office furniture or a leasehold building often prefers SLM because these assets provide roughly equal benefit every year.

Companies Act, 2013:

Companies must depreciate assets based on their useful life as prescribed in Schedule II, and can choose either SLM or WDV as long as the depreciable amount is written off over that useful life.

Frequently Asked Questions

1. Which method of depreciation is better — SLM or WDV?

Neither method is universally "better." SLM suits assets with steady, uniform usage, while WDV suits assets that are more productive in early years and require higher repair costs later.

2. Can a business use the SLM method for income tax purposes in India?

Generally no. Under the Income Tax Act, 1961, depreciation on most block of assets must be computed using the Written Down Value method, with only a few exceptions such as certain power-generating undertakings.

3. Does depreciation affect cash flow?

No. Depreciation is a non-cash accounting expense. It reduces book profit and the carrying value of the asset, but no actual cash payment is made when depreciation is recorded.

4. What happens if an asset is used for less than a full year?

Depreciation is charged only for the period the asset was actually in use during the accounting year, calculated on a pro-rata basis, unless the company follows a specific policy such as charging a full year's depreciation in the year of purchase.

5. Is depreciation the same as amortisation or depletion?

They are related but not identical. Depreciation applies to tangible fixed assets, amortisation applies to intangible assets like patents and goodwill, and depletion applies to natural resources such as mines and oil wells.

Conclusion

Depreciation is a foundational accounting concept that every Commerce student must master before moving to more advanced topics like financial statements, company accounts, and ratio analysis.

The Straight Line Method offers simplicity and consistency, while the Written Down Value Method better reflects how many assets actually lose value and aligns with Indian tax law.

Final Exam Tip:

Always read the question carefully to identify which method and rate is specified. Then double-check whether depreciation should be calculated on original cost or book value before you begin.

Want more solved examples and chapter-wise practice sheets on Depreciation, Provisions and Reserves? Explore our Class 11 Accountancy study resources or join SRC Classes for structured, exam-focused Commerce coaching.

Siddhartha Raturi

Siddhartha Raturi

INFLUENCER · YOUTUBER · EDUCATOR

This article is for educational purposes and reflects general accounting principles under Indian accounting standards, the Companies Act, 2013, and the Income Tax Act, 1961 as understood at the time of writing.

For specific compliance or tax filing decisions, consult a qualified Chartered Accountant.

Article prepared for SRC Classes Online · Class 11 Accountancy · CA Foundation · Depreciation, Provisions and Reserves