Advertisements
Advertisements
Question
State the limitations of written down value method of depreciation.
Advertisements
Solution
Following are the limitations of the written down value method.
- Assets cannot be completely written off:
Under this method, the value of an asset even if it becomes obsolete and useless, cannot be reduced to zero and some balance would continue in the asset account. - Ignores the interest factor:
This method does not take into account the loss of interest on the amount invested in the asset. The amount would have earned interest, had it been invested outside the business is not considered. - Difficulty in determining the rate of depreciation:
Under this method, the rate of providing depreciation cannot be easily determined. The rate is generally kept higher because it takes very long time to write off an asset down to its scrap value. - Ignores the actual use of the asset:
Under this method, a fixed rate of depreciation is provided on the written down value of the asset by applying the predetermined rate of depreciation on its original cost. But, the actual use of the asset is not considered in the computation of depreciation.
APPEARS IN
RELATED QUESTIONS
Answer in One Sentence only:
Why depreciation is charged even in the year of loss?
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 whether the following statement is True or False with reasons:
Depreciation increases the value of the asset.
State whether the following statement is True or False with reasons:
Wages paid for installation of Machinery are debited to Wages A/c.
Do you agree or disagree with the following statement:
Under written down value method the Depreciation curve slopes parallel to 'X' axis.
Complete the following sentence:
Depreciation is charged on ______ asset.
Complete the following sentence:
Under ______ system, the amount of depreciation changes every year.
For which of the following assets, the depletion method is adopted for writing off cost of the asset?
State the advantages of straight-line method of depreciation.
A factory’s machine remains idle for several months due to maintenance breakdowns. Which method ensures that depreciation is not overcharged during these idle periods?
