Question

Give two points of distinction between Original Cost Method and written down value method.​

Answer 1

Answer:

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Explanation:

SLM is a method of depreciation in which the cost of the asset is spread uniformly over the life years by writing off a fixed amount every year. WDV is a method of depreciation in which a fixed rate of depreciation is charged on the book value of the asset, over its useful life.Au

Answer 2

ANSWER :

The two points of difference between Original Cost Method and Written Down Value Method of depreciation are as follows :-

[1] Original Cost Method is a method of providing depreciation under which depreciation is charged at a fixed percentage on the original cost of the asset. Under this method, the amount of depreciation for a particular asset remains same from year to year.

On the other hand, Written Down Value Method 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.

[2] The amount of depreciation is calculated by deducting the scrap vaiue from the original cost of the asset and then dividing the remaining balance by the number of years of estimated life under Original Cost Method. Hence, there is unequal charge against income. The total burden charged to Profit and Loss Account in respect of depreciation and repairs put together is not be equal each year.

Whereas, depreciation is calculated on the balance of asset as appearing at the beginning of each year, i.e., on the diminishing value of the asset each year under Written Down Value Method. Hence, there is equal charge against income. The total burden charged to Profit and Loss Account in respect of depreciation and repairs put together remains almost equal each year.

MORE INFORMATION :

In accounting, depreciation is the process of allocating the net cost of fixed assets over ots estimated useful life.

• The word "Depreciation" has been derived from the Latin word "Depretum". 'De' means 'decline' and 'pretum' means 'price'. Hence, "Depreciation" mean "decline in price".

The various methods of providing depreciation on assets are :-

• [i] Straight Line Method or Original Cost Method or Fixed Instalment Method.

• [ii] Diminishing Balance Method or Written Down Value Method or Reducing Balance Method.

• [iii] Annuity Method.

• [iv] Depreciation Fund Method.

• [v] Insurance Policy Method.

• [vi] Revaluation Method.

• [vii] Depletion Method.

• [viii] Machine Hour Rate Method.