Depreciation, Provisions and Reserves

depreciation and corresponding time period is plotted on a graph, it will result in a straight line (figure . ). It is also called fixed installment method because the amount of depreciation remains constant from year to year over the useful life of the asset. According to this method, a fixed and an equal amount is charged as depreciation in every accounting period during the lifetime of an asset.

The amount annually charged as depreciation is such that it reduces the original cost of the asset to its scrap value, at the end of its useful life. This method is also known as fixed percentage on original cost method because same percentage of the original cost (infact depreciable cost) is written off as depreciation from year to year. The depreciation amount to be provided under this method is computed by using the following formula: asset the of life useful Estimated value l residentia net Estimated asset of Cost on Depreciati − Rate of depreciation under straight line method is the percentage of the total cost of the asset to be charged as deprecation during the useful lifetime of the asset. Rate of depreciation is calculated as follows: cost n Acquisitio amount on depreciati Annual on Depreciati of Rate × Consider the following example, the original cost of the asset is Rs.