SLM vs WDV Depreciation — Difference, Formula and Solved Examples

For B.Com Students | Financial Accounting — Depreciation

Depreciation is one of the most frequently tested numerical topics in B.Com Financial Accounting. Most questions revolve around two methods: the Straight Line Method (SLM) and the Written Down Value Method (WDV), also called the Diminishing Balance or Reducing Balance Method.

For hands-on practice on real data, a practical tally course in Kolkata can help you apply these concepts at work.

In this article you will learn the meaning of depreciation, the formulas for both methods, a side-by-side comparison, fully solved examples and the journal entries you need for exams and real accounting work.

1. What Is Depreciation?

Depreciation is the systematic allocation of the depreciable amount of a fixed asset over its useful life. In simple words, it spreads the cost of an asset like machinery, furniture or a computer over the years in which the business uses it.

Depreciable amount = Cost of asset − Residual (scrap) value

Main causes of depreciation:

• Wear and tear from use
• Passage of time
• Obsolescence (new technology makes the asset outdated)
• Depletion (for natural resources like mines)

2. Straight Line Method (SLM)

Under SLM, an equal amount of depreciation is charged every year.

Annual Depreciation = (Cost − Residual Value) ÷ Useful Life

Rate of Depreciation (%) = Annual Depreciation ÷ Cost × 100

Solved Example — SLM

A machine is purchased for ₹2,20,000. Installation costs ₹30,000. Residual value is ₹25,000 and useful life is 5 years.

• Total cost = ₹2,20,000 + ₹30,000 = ₹2,50,000
• Annual depreciation = (₹2,50,000 − ₹25,000) ÷ 5 = ₹45,000

At the end of Year 5 the book value equals the residual value — a good way to check your answer.

3. Written Down Value Method (WDV)

Under WDV, a fixed percentage is applied to the opening book value (written down value) of the asset each year. Because the book value falls every year, the depreciation amount also falls.

Depreciation for the year = Opening WDV × Rate %

Solved Example — WDV

The same machine costing ₹2,50,000 is depreciated at 20% p.a. on WDV.

Notice that under WDV the asset never reaches zero.

4. SLM vs WDV — Comparison Table

5. Journal Entries for Depreciation

There are two common ways of recording depreciation.

Method 1: Depreciation charged directly to the asset account

Depreciation A/c Dr. ₹45,000
To Machinery A/c ₹45,000

Method 2: Provision for Depreciation / Accumulated Depreciation account

Depreciation A/c Dr. ₹45,000
To Provision for Depreciation A/c ₹45,000

In both methods, depreciation is closed to the Profit and Loss Account:

Profit and Loss A/c Dr. ₹45,000
To Depreciation A/c ₹45,000

6. Asset Purchased During the Year

Exams often give a date of purchase in the middle of the year. Depreciation is then charged only for the months the asset was used.

Example: Furniture costing ₹60,000 was bought on 1 October. Books close on 31 March. Rate is 10% p.a. SLM.

Depreciation for the first year = ₹60,000 × 10% × 6/12 = ₹3,000

From the next year, full-year depreciation of ₹6,000 is charged.

7. Sale of an Asset — Profit or Loss

Example: A machine purchased for ₹1,00,000 is depreciated at 10% p.a. SLM. After 3 years it is sold for ₹65,000.

• Accumulated depreciation = ₹10,000 × 3 = ₹30,000
• Book value = ₹1,00,000 − ₹30,000 = ₹70,000
• Sale price = ₹65,000
• Loss on sale = ₹5,000

Journal entry for the sale (when depreciation is credited to the asset account):

Bank A/c Dr. ₹65,000
Profit and Loss A/c Dr. ₹5,000
To Machinery A/c ₹70,000

8. Change from SLM to WDV

Sometimes a question asks you to change the method. Read carefully whether the change is prospective (from the current year onward) or retrospective (recalculate from the date of purchase). Accounting standards generally treat a change in depreciation method as a change in accounting estimate, applied prospectively — but older textbook questions may ask for retrospective adjustment, so follow the question’s instruction.

9. Common Mistakes to Avoid

• Forgetting to add installation and carriage to the cost of the asset.
• Applying the WDV rate on original cost instead of opening book value.
• Charging a full year’s depreciation for an asset bought mid-year.
• Ignoring residual value in SLM.
• Not closing the Depreciation Account to Profit and Loss.

10. Practice Questions

1. A computer costs ₹80,000 with a residual value of ₹8,000 and life of 4 years. Find annual SLM depreciation. (Answer: ₹18,000)
2. A vehicle costs ₹5,00,000. Find depreciation for 3 years at 15% WDV. (Answer: ₹75,000; ₹63,750; ₹54,188 approx.)
3. Machinery bought on 1 July for ₹1,20,000; rate 10% SLM; year ends 31 March. Find first-year depreciation. (Answer: ₹9,000)
4. Give three differences between SLM and WDV.

For related topics, see Capital vs Revenue Expenditure and Final Accounts Problems with Adjustments, where depreciation is a common adjustment. The CU B.Com Sem 1 Financial Accounting Notes give a wider overview.

Frequently Asked Questions

Which depreciation method is better, SLM or WDV?

Neither is better in all cases. SLM suits assets that give equal benefit every year; WDV suits assets that lose value faster in early years, such as machinery and vehicles.

Why does WDV never reach zero?

Because each year’s depreciation is a percentage of the remaining value, a part of the value always remains.

Is depreciation a cash expense?

No. Depreciation is a non-cash expense. It reduces profit but does not involve cash outflow during the year.

Can I calculate depreciation quickly online?

Yes. Try Skillshort’s free Commerce & Accounting Calculators to check your working.

Final Thoughts

Learn the two formulas, practise at least three tables for each method, and always check the date of purchase. With this preparation, depreciation becomes one of the easiest scoring topics in Financial Accounting.