Question

Although written down value method is based upon a more realistic assumption it suffers from some limitations give any three such limitations​

Answer 1

ANSWER :

Although the Written Down Value Method is based upon a more realistic assumption it suffers from some limitations.

❖ Three points of such limitations are as follows :-

• [1] Asset can not be completely written off : Under the Written Down Value Method, the value of an asset, even if it becomes obsolete and useless, can not be reduced to zero. Some balance, however small, will remain in the Asset Account.

• [2] Difficulty in determining the rate of depreciation : Under the Written Down Value Method, the rate of providing depreciation can not be easily decided. The rate is generally kept higher because it takes a very long time to write an asset down to its scrap value.

• [3] Knowledge of Original Cost and upto-date depreciation not possible : Under the Written Down Value Method, the original cost of various assets is not shown in the Balance Sheet. Sometimes, the assets are grouped in such a way that it becomes difficult to know their specific identity.

MORE TO KNOW :

❖ Written Down Value Method :-

• Written Down Value Method is also known as Diminishing Balance Method or Reducing Instalment Method or Reducing Balance Method. It is a method of charging depreciation under which a fixed rate or percentage of depreciatuin is charged each year on the diminishing value of the asset till the amount is reduced to its scrap value. Under this method, as the value if asset goes on diminishing year after year, the amount of depreciation charged every year also goes on diminishing; although the rate of the depreciation remains fixed. There is equal charge against income under this method of charging depreciation. The total burden charged to Profit and Loss Account in respect of depreciation and repairs put together remains almost equal each year.

Answer 2

Answer:

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