Depreciation allocates the cost of a fixed asset over the years it is used, matching the expense to the revenue it helps generate. Two common methods are Straight-Line (SLM) and Written-Down Value (WDV).
This guide compares the two methods with examples.
What is depreciation?
Under SLM, an equal amount is charged every year over the asset's useful life. Under WDV, a fixed percentage is applied to the reducing book value, so the charge is higher in early years.
The Companies Act uses useful-life-based depreciation; the Income-tax Act prescribes WDV on blocks of assets.
SLM vs WDV
| Aspect | Straight-Line (SLM) | Written-Down Value (WDV) |
|---|---|---|
| Charge pattern | Equal each year | Higher in early years |
| Base | Original cost | Reducing book value |
| Used in | Companies Act (useful life) | Income-tax Act (block of assets) |
Example
Frequently asked questions
Which depreciation method does income tax use?
The Income-tax Act generally uses the Written-Down Value method on blocks of assets.
Why does WDV charge more early on?
Because the fixed rate is applied to a book value that reduces each year, front-loading the expense.