Question

Distinguish between straight-line method and written down value method of providing depreciation.

Answer 1

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.