AccountancyDepreciation: straight line and written down value methods
A machine bought today will be worth less each year until it is scrap. Depreciation spreads that loss fairly over the years the machine works.
Meaning
Depreciation is the fall in the book value of a tangible fixed asset because of use, the passing of time or obsolescence. Charging it each year does two things: it shows the true cost of earning that year's revenue (the matching principle), and it shows the asset at a sensible value in the balance sheet. Depreciation is a non-cash expense: no money is paid to anyone.
Related words: depletion is used for natural resources such as mines and quarries; amortisation for intangible assets such as patents. Land is normally not depreciated.
Causes and the three figures you need
- Wear and tear from use.
- Passage of time, as with a lease.
- Obsolescence: a newer and better model makes the asset out of date.
- Accidents and abnormal factors.
To calculate depreciation you need: cost (purchase price plus all expenses to bring the asset into use: freight, installation, trial run), estimated useful life, and estimated scrap (residual) value.
Straight line method (SLM)
The same amount is charged every year.
Annual depreciation = (Cost − Scrap value) ÷ Useful life
Rate = Annual depreciation ÷ Cost × 100
Example. On 1 April 2023 Deepak Industries bought a machine for ₹4,50,000 and spent ₹50,000 on installation. Its life is estimated at 5 years and scrap value at ₹50,000. Books close on 31 March.
Cost = ₹4,50,000 + ₹50,000 = ₹5,00,000. Annual depreciation = (5,00,000 − 50,000) ÷ 5 = ₹90,000, which is 18% of cost.
| Date | Particulars | ₹ | Date | Particulars | ₹ |
|---|---|---|---|---|---|
| 2023 Apr 1 | To Bank A/c (cost and installation) | 5,00,000 | 2024 Mar 31 | By Depreciation A/c | 90,000 |
| 2025 Mar 31 | By Depreciation A/c | 90,000 | |||
| 2026 Mar 31 | By Depreciation A/c | 90,000 | |||
| By Balance c/d (31 March 2026) | 2,30,000 | ||||
| 5,00,000 | 5,00,000 |
Written down value method (WDV, diminishing balance)
A fixed percentage is charged each year on the book value at the beginning of that year. The amount falls every year, and the book value never quite reaches zero.
Same machine at 20% a year on written down value:
| Year ended 31 March | Opening book value | Depreciation at 20% | Closing book value |
|---|---|---|---|
| 2024 | 5,00,000 | 1,00,000 | 4,00,000 |
| 2025 | 4,00,000 | 80,000 | 3,20,000 |
| 2026 | 3,20,000 | 64,000 | 2,56,000 |
The two methods compared
| Point | Straight line | Written down value |
|---|---|---|
| Basis | Original cost | Book value at the start of each year |
| Yearly charge | Same every year | High at first, falling later |
| Book value at end of life | Can reach scrap value or zero | Never becomes zero |
| Total burden with repairs | Rises over time, as repairs increase | More even: falling depreciation offsets rising repairs |
| Suitable for | Assets with steady use and few repairs: leases, patents, furniture | Machinery and vehicles that lose value fast and need growing repairs |
Journal entries
When depreciation is charged directly to the asset account (as in the accounts above):
| Date | Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Mar 31 | Depreciation A/c Dr. | 90,000 | |
| To Machinery A/c | 90,000 | ||
| (Depreciation charged for the year) | |||
| Mar 31 | Profit and Loss A/c Dr. | 90,000 | |
| To Depreciation A/c | 90,000 | ||
| (Depreciation transferred to Profit and Loss A/c) | |||
| Total | 1,80,000 | 1,80,000 | |
When a Provision for Depreciation (Accumulated Depreciation) Account is kept, the asset stays in the books at cost and the depreciation collects in the provision account:
| Date | Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|---|
| Mar 31 | Depreciation A/c Dr. | 90,000 | |
| To Provision for Depreciation A/c | 90,000 | ||
| (Depreciation provided for the year) | |||
In the balance sheet the provision is shown as a deduction from the cost of the asset: Machinery ₹5,00,000 less provision ₹2,70,000 = ₹2,30,000 after three years.
Sale of an asset
Example (SLM, continued). On 1 October 2026 the machine is sold for ₹1,70,000.
- Depreciation for the six months to the date of sale: ₹90,000 × 6/12 = ₹45,000.
- Book value on the date of sale: ₹2,30,000 − ₹45,000 = ₹1,85,000.
- Sale price ₹1,70,000 is less than book value, so the loss on sale is ₹15,000.
| Date | Particulars | ₹ | Date | Particulars | ₹ |
|---|---|---|---|---|---|
| 2026 Apr 1 | To Balance b/d | 2,30,000 | 2026 Oct 1 | By Depreciation A/c (6 months) | 45,000 |
| 2026 Oct 1 | By Bank A/c (sale) | 1,70,000 | |||
| 2026 Oct 1 | By Profit and Loss A/c (loss on sale) | 15,000 | |||
| 2,30,000 | 2,30,000 |
Had it been sold for more than ₹1,85,000, the difference would be a profit, debited to Machinery A/c and credited to Profit and Loss A/c.
The same sale with a provision account: Asset Disposal Account
When the asset is kept at cost, a separate Machinery Disposal A/c collects the cost, the accumulated depreciation and the sale proceeds. Accumulated depreciation to the date of sale = ₹2,70,000 + ₹45,000 = ₹3,15,000.
| Date | Particulars | ₹ | Date | Particulars | ₹ |
|---|---|---|---|---|---|
| 2026 Oct 1 | To Machinery A/c (cost) | 5,00,000 | 2026 Oct 1 | By Provision for Depreciation A/c | 3,15,000 |
| 2026 Oct 1 | By Bank A/c | 1,70,000 | |||
| 2026 Oct 1 | By Profit and Loss A/c (loss) | 15,000 | |||
| 5,00,000 | 5,00,000 |
Points to remember
- Depreciation is charged from the date the asset is put to use. For an asset bought on 1 October, charge six months in the first year unless the question says otherwise.
- Under WDV, "10% p.a." is always on the reducing balance, never on cost.
- Additions during the year are depreciated only for the months they were held.
- Repairs that keep the asset working are revenue expenses; they are not added to cost.
For real businesses. Rates and methods for tax and for company accounts are laid down by law and differ from textbook examples. The figures here are for learning the method.
Questions students ask
What is the formula for straight line depreciation?
Annual depreciation = (Cost − Scrap value) ÷ Useful life in years. Cost includes freight and installation.
Why is the written down value method suitable for machinery?
Because machinery loses more value in early years and needs more repairs later. Falling depreciation and rising repairs together give a fairly even yearly charge.
Is depreciation a cash expense?
No. It is a book entry that reduces profit and the asset's value. No cash is paid out.
More Class 11 topics
For study, and independent. These pages explain accountancy as it is generally taught in Class 11, Class 12 and B.Com courses in India, in our own words with our own examples, reviewed in November 2026. This site is not connected with NCERT, CBSE, ICAI or any board or university. Syllabuses change: follow your own board's or university's current syllabus and textbook. Nothing here is professional accounting, tax or legal advice.