Depreciation Methods
Assets lose value over time.
What is Depreciation?
Systematic allocation of asset cost over its useful life.
Machine costs ₹10L, lasts 10 years → ₹1L expense each year.
Methods
1. Straight Line (Most Common)
Formula: (Cost - Salvage Value) / Useful Life
Example: Car: ₹10L, Salvage after 10 years: ₹1L Depreciation = (10L - 1L) / 10 = ₹90,000/year
2. Written Down Value (Reducing Balance)
Depreciation on REDUCING balance each year.
Year 1: 10L × 10% = 1L (Balance: 9L) Year 2: 9L × 10% = 90K (Balance: 8.1L) Year 3: 8.1L × 10% = 81K ...
More in early years, less later.
3. Units of Production
Based on usage, not time.
Machine makes 1L units lifetime, costs ₹10L Per unit depreciation = ₹10
💡 Tax Benefit
Higher depreciation = Lower profit = Lower tax!
Businesses prefer accelerated depreciation methods.
Quiz
Test Your Knowledge
Test Your Knowledge
Question 1 of 1
1. What is the main concept covered in this lesson?
Key Takeaway: Understanding Depreciation Methods is essential for making informed financial decisions.