Advertisements
Advertisements
प्रश्न
Distinguish between straight-line method and written down value method of providing depreciation.
Advertisements
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. |
|
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. |
APPEARS IN
संबंधित प्रश्न
State whether the following statement is True or False with reasons:
Wages paid for installation of Machinery are debited to Wages A/c.
State whether the following statement is True or False with reasons:
Depreciation need not be charged when business is making losses.
Complete the following sentence:
______ is the value which an asset realises at the end of its useful life.
Which method shall be efficient, if repairs and maintenance cost of an asset increases as it grows older.
If the rate of depreciation is the same, then the amount of depreciation under straight-line method vis-à-vis written down value method will be ______.
A firm purchased a plant for ₹ 40,000. Erection charges amounted to ₹ 2,000. The effective life of the plant is 5 years. Calculate the amount of depreciation per year under the straight-line method.
M/s Omkar Enterprise Jalgaon acquired a Printing Machine for ₹ 75,000 on 1st Oct 2015 and spent ₹ 5,000 on its transport and installation. Another Machine for ₹ 45,000 was purchased on 1st Jan 2017. Depreciation is charged at the rate of 20% on Written Down Value Method, on 31st March every year.
Prepare Printing Machine Account for the first four years.
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:
M/s Omkar Enterprise Jalgaon acquired a Printing Machine for ₹ 75,000 on 1 Oct 2015 and spent ₹ 5,000 on its transport and installation. Another Machine for ₹ 45,000 was purchased on 1st Jan 2017. Depreciation is charged at the rate of 20% on the Written Down Value Method, on 31st March every year.
Prepare Printing Machine Account for the first four years.
A firm buys a machine that wears out faster in early years but provides greater efficiency initially. Which depreciation method would most accurately reflect this pattern?
