long life and which require considerable repairs in the later years when they become older. Examples are building and plant and machinery. Illustration A firm purchased a plant on . .
for ` , and spent ` , as erection charges. Calculate the amount of depreciation for the year @ % per annum under the written down value method. Accounts are closed on 31st March every year. Solution Original cost = , + , = , Rate of depreciation = % Date of purchase = .
. Number of months used = . . to .
. = months Amount of depreciation = % on , for months = , × % × / = ` In Microsoft Excel, there are inbuilt finance functions available for calculating depreciation. For example: SLM for calculating depreciation under Straight Line Method (SLM) and DB for Diminishing Balance method (DB). .
. . Differences between straight line method and written down value method Following are the differences between straight line method and written down value method Point of difference Straight line method Written down value method . 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. . Amount of depreciation The amount of depreciation is the same for all the years. The amount of depreciation goes on decreasing year after year.
. 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. Accountancy .
Computation of rate of depreciation It is easy to calculate the rate of depreciation. It is very difficult to calculate the rate of depreciation. . 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. . Total