Straight Line Method and Written Down Value are both ways of calculating depreciation. It has a different way of calculating the rate.
The calculation method is easy in the Straight Line but complicated in the Written Down Value Method. The methods are different from each other. Asset value never becomes zero in Written Down Value.
Key Takeaways
- Straight-line depreciation allocates the same expense amount over an asset’s useful life. In contrast, the written-down value method allocates higher expenses in earlier years and lower expenses in later years.
- The straight-line method results in consistent depreciation expenses, while the written-down value method leads to a decreasing depreciation expense pattern.
- Companies choose between these methods based on tax regulations, asset characteristics, and business strategies.
Straight Line vs Written Down Value Method Of Depreciation
The difference between the Straight Line and Written Down Value Method Of Depreciation is Straight Line is a method with a fixed amount of depreciation, but the Written Down Value Method is a method with a fixed rate of interest. The asset value becomes zero in the Straight-line method, but the asset does not turn zero in the Written Down Value method of depreciation.
The Straight Line Method is used to calculate depreciation with a fixed amount of depreciation. The rate of depreciation can change following many other aspects.
Asset value becomes zero in this method. The depreciation value charged is constant over various periods. The straight-line method is easier to understand.
The Written Down-Value method is used to calculate depreciation at a fixed rate of interest. The rate of depreciation is constant till the last period.
Asset value never becomes zero in this method. A charge is high in this method. The method to calculate depreciation is higher. This method never gets written off completely.
Comparison Table
| Parameters Of Comparison | Straight Line Method Of Depreciation | Written Down Value Method Of Depreciation |
|---|---|---|
| Fixed | Depreciation | Rate of interest |
| Rate of depreciation | Different | Constant |
| Asset Value | Can become zero | Never zero |
| Depreciation | Low | High |
| Calculation | Easier | Complicated |
| Written off | Yes | No |
What is Straight Line Method Of Depreciation?
Depreciation can be calculated by using the Straight Line method. This is considered the simplest way to calculate an asset’s value loss over time.
The best alternative for most situations when you need to calculate capital expenditures from previous years’ results is to use income-based methods such (that means that by using something other than direct figures) rather than looking through tables or graphs to learn about these investments.
Here are some examples based on property values measured since 1975: I used this formula with both real property and equity bonds which were purchased between 1976 – 2000 under various options until 2003 during their recovery phase before changing direction back towards US equities due to “the bubble” effect caused especially by massive stock market manipulation created prior past bubbles!
You don’t have too many options for what percentage of your net worth you could deduct each year through the Straight Line Method – or any other accounting system that allows less than 15% annual deductions per item in gross income.
The following table lists some examples from Forbes readers who used this simple chart tool at various times during their financial years using the information provided by IRS publications regarding Adjusted Gross Income/Annualized Cost (AGI) requirements.
What is Written Down Value Method Of Depreciation?
Written-down value is the depreciation calculation method that shows an asset’s value after taking all aspects. In short, it’s your “investment credit.”
This number indicates how much you’re paying in capital gains tax on each sale that creates, again, over and above normal business expenses.
It doesn’t include dividend reinvested earnings (which are included when calculating total income). Most real estate investment trusts do &receive this amount even if they didn’t set up such accounts at all, so here we have to wonder what these numbers mean.
Note that this calculation differs from a common valuation method which finds the fair value at initial maturity, using estimated market prices to determine if you should pay more in cash per share than stated by management versus when valuing your business with quoted markets over time.
Beware that certain instruments include derivatives associated and/or sold through them, such as these: U.S.-based interest rate swaps; foreign exchange forwards traded against futures contracts on international rates like LIBOR, including those offered by brokers involved directly in buying but not executed according to heretofore described – trading price includes fees charge.
Main Differences Between Straight Line and Written Down Value Method Of Depreciation
- The straight-line method is used for a fixed amount of depreciation, but the Written Down value is used for a fixed rate of interest.
- The depreciation rate is different in a straight line, but the depreciation rate is constant in written-down values.
- Asset value in the straight-line method is zero, but Asset value in the Written down method does not become zero.
- Depreciation is low in a straight line compared to the written-down value method.
- The Straight Line Method is easier to calculate than the Written Down Value Method.
- The straight-line method is written off, but the Written down value is not written off.
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
It’s intriguing to think how these methods can affect business operations, especially when it comes to strategic decisions.
It provides a lot to think about. The implications of these methods cannot be overstated.
Indeed, it’s a subject that needs a careful approach.
I always thought Straight Line was the most commonly used method. In this article, I learned some new perspectives.
Thanks for sharing these insights. I’m always eager to learn more about financial topics.
Both methods of depreciation have their pros and cons. It is fascinating to learn how businesses choose according to their needs.
This article provides a great comparison. Straight-line seems to be much easier to understand and implement in real life.
I also found the part about the asset value becoming zero or not very interesting. It changes the way businesses may perceive their assets.
I agree. It is always interesting to know how these methods work. Context is everything.
It is always good to know where to find reliable references.
Absolutely. It’s good to see that the authors of this article have a strong knowledge of the subject.
The understanding of these methods is key for financial professionals. The choice of method has a critical impact on financial statements.
The references are invaluable for delving deeper into the subject.
I find it fascinating how businesses choose between the two methods to calculate depreciation. The rates seem to have a big impact on financial statements.