7.6 Methods of Calculating Depreciation Amount

The depreciation amount to be charged for during an accounting year depends upon depreciable amount and the method of allocation. For this, two methods are mandated by law and enforced by professional accounting practice in India. These methods are straight line method and written down value method. Besides these two main methods there are other methods such as – annuity method, depreciation fund method, insurance policy method, sum of years digit method, double declining method, etc.

which may be used for determining the amount of depreciation. The selection of an appropriate method depends upon the following : Type of the asset; Nature of the use of such asset; Circumstances prevailing in the business; As per Accounting Standard- , the selected depreciation method should be applied consistently from period to period. Change in depreciation method may be allowed only under specific circumstances.