We know that there are 2 methods of depreciation
1 .WDV Method (Written down Value Method)
2 .SLM Method (Straight Line Method)
WDV Method
Suppose Asset Value is 5000 and Depreciation Rate is 10% WDV.
Depreciation will be computed as follows
Particulars |
Year 1 |
Year 2 |
Year 3 |
Opening Value |
5000 |
4500 |
4050 |
Less Dep 10% |
500 |
450 |
405 |
Closing Value |
4500 |
4050 |
3645 |
Hence Closing Value of One Year becomes opening Value of Next Year on which Depreciation is calculated
SLM Method
EXAMPLE
Suppose Asset Value is 5000 and Depreciation Rate is 10% WDV.
Depreciation will be computed as follows
Particulars | Year 1 | Year 2 | Year 3 |
Opening Value | 5000 | 4500 | 4000 |
Less Dep 10% | 500 | 500 | 500 |
Closing Value | 4500 | 4000 | 3500 |
Hence,depreciation value is same every year in SLM Method
Depreciation Method in Income Tax
Normally WDV Method Used
In Income Tax, Depreciation is calculated as per WDV Method(Written Down Value Method)
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SLM Method (Straight Line Method) in Some Cases
However for Power Generation and Distribution unit only SLM Method is used which we will study late r
Lets study WDV Method first in detail
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