SLM vs WDV Depreciation: CA Foundation Accounts
Two methods, one goal: allocating the cost of an asset over its useful life. But they give completely different depreciation charges and book values — a regular 5–10 mark question in CA Foundation.
head-to-Head Comparison
| Basis | Straight Line Method (SLM) | Written Down Value Method (WDV) |
|---|---|---|
| Also Known As | Fixed Instalment Method / Original Cost Method | Diminishing Balance Method / Reducing Balance Method |
| Depreciation Charge | Constant / Equal every year (Fixed amount) | Decreasing every year (as base reduces) |
| Base for Calculation | Original Cost of the Asset (remains fixed every year) | Written Down Value (Book Value) at the beginning of each year |
| Book Value at End of Life | Exactly equals Residual / Scrap Value (reaches zero if scrap = 0) | Never becomes exactly zero (only approaches zero asymptotically) |
| Suitability | Assets that give equal utility every year (e.g., Leasehold property, Patents) | Assets with higher utility in early years (e.g., Machinery, Vehicles) |
The 'WDV Never Reaches Zero' Trap
Under WDV, since depreciation is charged on a reducing balance, the asset's book value is mathematically never zero. However, under SLM with zero scrap value, the book value reaches exactly zero at the end of the asset's useful life. In exams, if a question says 'Book Value = Nil at end of life', it implies SLM.
Common Ground (Similarities)
- Both methods result in the same total depreciation over the asset's life.
- Both reduce the carrying value (book value) of the asset over time.
- Both are accepted methods under accounting standards and tax laws in India.
Test Your Understanding
Q1: Under SLM, the depreciation charge per year is calculated on:
Written Down Value
Market Value
Original Cost ✅
Replacement Cost
Explanation: SLM computes depreciation as (Original Cost − Scrap Value) / Useful Life, applied on the Original Cost each year, giving a constant charge.
Q2: Which method gives higher depreciation in earlier years?
SLM
WDV ✅
Both are equal
Sinking Fund Method
Explanation: Under WDV, depreciation is on a high base (full WDV) in the first year. As the WDV reduces, so does the charge. Hence WDV provides higher depreciation in earlier years.