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CA Foundation · Accounting · Depreciation and Amortisation

Under the Written Down Value method, depreciation is charged every year at a fixed percentage on which of the following?

Depreciation under the WDV method is charged at a fixed percentage on the opening book value, which is cost less accumulated depreciation. Because this base shrinks each year, the depreciation charge declines over time, unlike the straight-line method where the charge on original cost stays constant.

  1. AOriginal cost of the asset
  2. BOpening book value of the asset for that yearCorrect
  3. CEstimated scrap value of the asset
  4. DTotal depreciable amount over the useful life

Explanation

In the WDV (reducing balance) method the fixed rate is applied to the book value brought forward at the start of each year, i.e. cost less accumulated depreciation. Applying the rate to original cost is the straight-line approach, so option A is wrong. Hence the annual charge falls year after year.

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