Definitions [3]
Depreciation means a gradual decrease in the value of fixed assets like buildings, machinery, furniture, and equipment due to their use, passage of time, or technological changes.
It is a method of depreciation where the same (fixed) amount is reduced from an asset’s value every year until it reaches its scrap value or end of life.
The Written Down Value (WDV) Method is a way to calculate depreciation where a fixed percentage is charged every year on the asset’s current book value (its remaining value after previous depreciation), making the depreciation amount decrease each year as the asset’s value reduces.
Formulae [3]
\[\text{Depreciation (p.a.)}=\frac{\text{Cost of the Asset × Rate of depreciation}}{100}\]
Note: If the asset is used for only part of the year, charge depreciation in proportion to the time used.
\[\mathrm{Depreciation~(p.a.)~=~\frac{Original~cost~-~Scrap~Value}{Estimated~life~of~the~asset~(in~years)}}\]
Original cost of Asset = Purchasing price of an Asset + Incidental charges, etc.
\[\text{Depreciation}=\text{Book Value at beginning of year}\times\frac{\text{Rate of Depreciation}}{100}\]
Where:
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Book Value = Cost – Accumulated Depreciation
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Rate of Depreciation (%) = Fixed rate used each year
Concepts [7]
- Concept of Depreciation
- Fixed Instalment Method
- Written Down Value Method
- Accounting Treatment under Fixed Instalment and Written Down Value Methods
- Accounting Treatment of Depreciation-By Creating Provision for Depreciation
- Accounting Treatment of Depreciation-Accumulated Depreciation Account
- Problems Relating to Purchase and Sale of Assets Incorporating the Application of Depreciation Under the Two Stated Methods
