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प्रश्न
Distinguish between straight-line method and written down value method of providing depreciation.
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उत्तर
| Points of calculation | Straight-line method | Written down value method |
| 1. Basis of calculation | Depreciation is calculated on the original cost of the asset for all the years. | Depreciation is calculated on the written down value of the asset year after year. |
| 2. Amount of depreciation | The amount of depreciation is the same for all the years. | The amount of depreciation goes on decreasing year after year. |
| 3. Book value of the asset at the end of its life | The book value of the asset becomes zero when there is no scrap value or is equal to its scrap value at the end of its life. | The book value of the asset never becomes zero. |
| 4. Computation of rate of depreciation | It is easy to calculate the rate of depreciation. | It is very difficult to calculate the rate of depreciation. |
| 5. Order of calculation of depreciation amount | Amount of depreciation is calculated first, followed by the rate of depreciation. | Rate of depreciation is calculated first, followed by the amount of depreciation. |
| 6. Total charge | As the cost of repair goes on increasing with the passage of time, the total charge, i.e., the total of depreciation amount and repair amount keeps on increasing from year to year. | As the cost of repair increases and depreciation decreases with the passage of time, total of depreciation amount and repair amount charged to the profit and loss account remains almost the same from year to year. |
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7. Suitability |
It is suitable for assets for which the repair charges are less and the possibility of obsolescence is less and the expiration of the cost of an asset depends upon the time period involved. | It is suitable for assets that are affected by technological changes and assets which require more repairs with the passage of time. |
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संबंधित प्रश्न
Select the most appropriate answer from the alternatives given below and rewrite the sentence:
The amount that a fixed asset is expected to realise on its disposal is known as ______
State the advantages of straight-line method of depreciation.
State the advantages of written down value method of depreciation.
Machinery was purchased on 1st January 2015 for ₹ 4,00,000. ₹ 15,000 was spent on its erection and ₹ 10,000 on its freight charges. Depreciation is charged at 10% per annum on the straight-line method. The books are closed on 31st March each year. Calculate the amount of depreciation on machinery for the first two years.
Ragul purchased machinery on April 1, 2014 for ₹ 2,00,000. On 1st October 2015, a new machine costing ₹ 1,20,000 was purchased. On 30th September 2016, the machinery purchased on April 1, 2014 was sold for ₹ 1,20,000. Books of accounts are closed on 31st March and depreciation is to be provided at 10% p.a. on straight line method. Prepare machinery account and depreciation account for the years 2014-15 to 2016-17.
Raj & Co purchased a machine on 1st January 2014 for ₹ 90,000. On 1st July 2014, they purchased another machine for ₹ 60,000. On 1st January 2015, they sold the machine purchased on 1st January 2014 for ₹ 40,000. It was decided that the machine be depreciated at 10% per annum on the diminishing balance method. Accounts are closed on 31st December every year. Show the machinery account for the years 2014 and 2015.
Correct the following statement and rewrite the statement.
Underwritten down value method depreciation is calculated on the original cost of an asset.
Samarth Manufacturing Co. Ltd, Aurangabad, purchased a New Machinery for ₹ 45,000 on 1st Jan 2015 and immediately spent ₹ 5,000 on its fixation and erection. In the same year, 1st July additional Machinery costing ₹ 25,000 was purchased. On 1st July 2016, the Machinery purchased on 1st Jan 2015 became obsolete and was sold for ₹ 40,000.
Depreciation was provided annually on 31st March at the rate of 10% per annum on the Fixed Instalment Method.
You are required to prepare Machinery Account for the year 2014-15, 2015-16, 2016-17.
Radhika-Masale’ Amravati purchased a Plant on 1st Jan. 2015 for ₹ 80,000. A new Plant was also purchased
for ₹ 60,000, installation expenses being ₹ 10,000 on 1st April 2016. On 1st Jan 2017, a new Plant was purchased for ₹ 20,000, by disposing of the 1st Plant at ₹ 60,000.
Prepare Plant Account and Depreciation Account for 31st March 2015, 31st March 2016, and 31st March 2017, assuming that the rate of depreciation was @ 10% on Diminishing Balance Method.
Solution:
The Annuity Method is most suitable when:
