Calculation of Depreciation Rate using Written Down Value Method

To calculate the depreciation rate using the written down value method, the following steps need to be taken:

Step 1: Determine the cost of the machinery

The cost of the machinery is ₹50000.

Step 2: Determine the salvage value

The salvage value is ₹10000.

Step 3: Determine the useful life

The useful life is 10 years.

Step 4: Calculate the depreciation rate

The depreciation rate using the written down value method can be calculated using the following formula:

Depreciation Rate = (1 - Salvage Value / Cost)^(1 / Useful Life) x 100%

Substituting the values from the question, we get:

Depreciation Rate = (1-10000/50000)^(1/10) x 100%
Depreciation Rate = (0.8)^(0.1) x 100%
Depreciation Rate = 0.9307 x 100%
Depreciation Rate = 93.07%

Explanation of Written Down Value Method

The written down value method of depreciation is a popular method used by companies to calculate the depreciation of their assets. This method assumes that the asset will depreciate more in its early years and less in its later years.

Under this method, the depreciation expense is calculated as a percentage of the written down value of the asset. The written down value is the cost of the asset minus the accumulated depreciation.

For example, in the first year, the depreciation expense is calculated as a percentage of the cost of the asset. In the second year, the depreciation expense is calculated as a percentage of the written down value of the asset from the first year.

This method is beneficial for companies that use assets that have a high rate of obsolescence or wear and tear. It ensures that the depreciation expense is higher in the early years, providing the company with a tax advantage.

However, this method can be complicated and requires a significant amount of record-keeping. It also does not take into account the actual usage of the asset, which can lead to inaccuracies in the calculation of the depreciation expense.

4000 is starting depreciation and according to different different balances depreciation changes