Depreciation, Provisions and Reserves

depreciation is calculated on original cost while under written down value method it is calculated on written dow n value. . . Total Charge Against Profit and Loss Account on Account of It is a well-accepted phenomenon that repair and maintenance expenses increase in later years of the useful life of the asset.

Hence, total charge against profit and loss account in respect of depreciation and repair expenses increases in later years under straight line method. This happens because annual depreciation charge remains fixed while repair expenses increase. On the other hand, under written down value method, depreciation charge declines in later years, therefore total of depreciation and repair charge remains similar or equal year after year. Straight line method is not recognised by Income Tax Law while written down value method is recognised by the Income Tax Law.

Straight line method is suitable for assets in which repair charges are low the possibility of obsolescence is low and scrap value depends upon the time period involved, such as freehold land and buildings, patents, trade marks, etc. Written down value method is suitable for assets which are affected by technological