Class 11 Accountancy - Chapter Depreciation, Provisions and Reserves NCERT Solutions | Discuss in detail the straight line meth

Welcome to the NCERT Solutions for Class 11th Accountancy - Chapter Depreciation, Provisions and Reserves. This page offers a step-by-step solution to the specific question from Exercise 2, Question 2: discuss in detail the straight line method and wri....
Question 2

Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

Answer

Straight Line Method : In a straight line method of depreciation 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. In this case, depreciation amount is also calculated by dividing depreciable cost by the estimated life of the assets. It is also a Fixed installment method because the amount of depreciation remains constant from year to year over the useful life of the asset.

Written Down Value Method : In written down value method, the depreciation is calculated at a fixed percentage of written down value of the asset. The method assumes that the benefit acquired to business by utilization of assets keeps on decreasing as the asset gets old. As the value of assets goes on decreasing from year to year, the amount of depreciation charged to different accounting years decreases with the passage of time.

Distinguish between Straight Line Method and Written Down Value Method:

Straight Line Method Written Down Value Method
  • Depreciation is charged on original cost of assets.
  • Amount of the depreciation remains fixed every year.
  • It is not recognized by Income Tax Law.
  • Rate of depreciation can be calculated easily.
  • It is complicated in calculation.
  • Depreciation is charged on Written down value of assets.
  • Amount of depreciation keeps on decreasing from year to year.
  • It is recognized by Income Tax Law
  • It is complicated in calculation.


Suitability of Straight Line Method & Written Down Value Method:

  • Suitability of Straight Line Method : This method depreciation is suitable for assets in which the repair charges are less and the possibility of obsolescence is less and expiration of cost depends upon the time period involved.
  • Suitability of Written Down Value Method : This method of depreciation is suitable for assets which are affected by technological changes; require more repairs with passage of time.

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