Here we detail about the difference between straight line and written down value method of depreciation.
Straight Line Method:
1. Depreciation is calculated on original cost of the asset.
2. Amount of depreciation remains same during the useful life of the asset.
3. Book value of the asset can be reduced to zero or to its scrap value.
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4. Not applicable for income tax purposes.
5. In the initial years, total charge (depreciation plus repairs) is less but in the later years, total charge increases as repairs increase while depreciation remains the same.
6. Suitable for assets which give almost equal utility in terms of productivity during the entire useful life of the assets like Trademarks, Copyrights etc.
Written Down Value Method:
1. Depreciation is calculated on written down value of the asset.
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2. Amount of depreciation keeps on reducing every year.
3. Book value never gets reduced to zero.
4. Applicable for income tax purposes.
5. The total charge remains almost the same as in the initial years repairs are less and depreciation is high while in later years, repairs increase and depreciation decreases.
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6. This method is suitable for assets which gives higher utility in the initial years like Machinery etc..