Question

Under which method of charging depreciation more amount is charged in the initial years as compared to the later years of its life? Give any two merits of this method.

Hint:

The WDV method is suitable for assets that lose value rapidly in their initial years, such as machinery and vehicles.

Answer 1

The Written Down Value (WDV) Method charges depreciation on the book value of the asset, which decreases over time. As a result, higher depreciation is charged in the initial years, and the amount decreases in later years.

Merits of the WDV Method:

1. It matches depreciation expense with the asset’s usage, which is higher in the initial years.

2. It reduces the tax burden in the early years, as higher depreciation leads to lower taxable profits.