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Class 11
Accountancy
Depreciation, Provisions and Reserves
discuss in detail the straight line method and wri...

Question:
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

Answer:

Straight Line Method : In a straight line method of depreciation a fixed and an equal amount is charged as depreciation in every accounting period during the lifetime of an asset. The amount annually charged as depreciation is such that it reduces the original cost of the asset to its scrap value, at the end of its useful life. In this case, depreciation amount is also calculated by dividing depreciable cost by the estimated life of the assets. It is also a Fixed installment method because the amount of depreciation remains constant from year to year over the useful life of the asset.

Written Down Value Method : In written down value method, the depreciation is calculated at a fixed percentage of written down value of the asset. The method assumes that the benefit acquired to business by utilization of assets keeps on decreasing as the asset gets old. As the value of assets goes on decreasing from year to year, the amount of depreciation charged to different accounting years decreases with the passage of time.

Distinguish between Straight Line Method and Written Down Value Method:

Straight Line Method	Written Down Value Method
Depreciation is charged on original cost of assets. Amount of the depreciation remains fixed every year. It is not recognized by Income Tax Law. Rate of depreciation can be calculated easily. It is complicated in calculation.	Depreciation is charged on Written down value of assets. Amount of depreciation keeps on decreasing from year to year. It is recognized by Income Tax Law It is complicated in calculation.

Suitability of Straight Line Method & Written Down Value Method:

Suitability of Straight Line Method : This method depreciation is suitable for assets in which the repair charges are less and the possibility of obsolescence is less and expiration of cost depends upon the time period involved.
Suitability of Written Down Value Method : This method of depreciation is suitable for assets which are affected by technological changes; require more repairs with passage of time.

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Popular questions of class 11 Accountancy

Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.

From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner.

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(b) Internal users are the ..................... of the business entity.
(c) A ..................... would most likely use an entities financial report to determine whether or not the business entity is eligible for a loan.
(d) The Internet has assisted in decreasing the ..................... in issuing financial reports to users.
(e) ..................... users are groups outside the business entity, who uses the information to make decisions about the business entity.
(f) Information is said to be relevent if it is ......................
(g) The process of accounting starts with ............ and ends with ............
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What is a journal? Give a specimen of journal showing at least five entries.

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(i) If a firm believes that some of its debtors may ′default′, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___________ concept.
(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the ___________ concept.
(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the ___________ concept.
(iv) The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.
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(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to the ___________.
(vii) The management of a firm is remarkably incompetent, but the firms accountants can not take this into account while preparing book of accounts because of ________ concept.

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Question:
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

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Question: Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.

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Question:
Discuss in detail the straight line method and written down value method of depreciation. Distinguish between the two and also give situations where they are useful.