What is the difference between SLM and WDV method of depreciation?

SLM charges equal depreciation each year based on original cost. WDV charges a fixed percentage on the declining book value, so depreciation decreases each year. WDV is recognized by the Income Tax Act in India.

Why is depreciation charged even though no cash is paid?

Depreciation is a non-cash charge that accounts for the cost of using the asset over its useful life. It matches the expense of the asset with the revenue it generates (matching principle), reducing profit appropriately without any cash outflow.

What is a Provision for Depreciation Account?

Instead of reducing the asset account directly, depreciation is credited to a separate 'Provision for Depreciation' account. This keeps the asset at original cost in the books; the provision is deducted from the asset in the balance sheet to show book value.

Methods of Depreciation

Depreciation, Provisions and Reserves • Class 11 Accountancy • NCERT • CBSE

Depreciation = reduction in value of fixed asset. SLM: equal depreciation each year = (Cost − Residual Value)/Useful life. WDV: fixed % on book value (diminishing balance). Journal: Debit Depreciation A/c, Credit Asset A/c.

Key Formulas

SLM Depreciation = (Cost − Scrap Value) / Useful Life
Rate (%) = (Annual Dep. / Original Cost) × 100
WDV Depreciation = Rate% × Book Value (beginning of year)

Frequently Asked Questions

What is the difference between SLM and WDV method of depreciation?: SLM charges equal depreciation each year based on original cost. WDV charges a fixed percentage on the declining book value, so depreciation decreases each year. WDV is recognized by the Income Tax Act in India.
Why is depreciation charged even though no cash is paid?: Depreciation is a non-cash charge that accounts for the cost of using the asset over its useful life. It matches the expense of the asset with the revenue it generates (matching principle), reducing profit appropriately without any cash outflow.
What is a Provision for Depreciation Account?: Instead of reducing the asset account directly, depreciation is credited to a separate 'Provision for Depreciation' account. This keeps the asset at original cost in the books; the provision is deducted from the asset in the balance sheet to show book value.

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