What is the Difference Between SLM and WDV Method of Depreciation?
🆚 Go to Comparative Table 🆚The primary difference between the Straight Line Method (SLM) and the Written Down Value (WDV) method of depreciation lies in the calculation of depreciation. Here are the key differences between the two methods:
- Calculation of Depreciation: In SLM, the depreciation is evenly distributed over the asset's useful life, while in WDV, a fixed percentage is applied to the asset's declining book value.
- Depreciation Rate: In SLM, the depreciation rate remains constant throughout the asset's useful life, whereas in WDV, the depreciation rate decreases every year.
- Initial Depreciation: The initial depreciation charged is lower in SLM, while it is relatively higher in WDV.
- Asset Value at the End of Useful Life: In SLM, the asset value becomes zero at the end of its useful life, while in WDV, the asset value does not become zero.
- Ease of Understanding: SLM is easier to understand and determine depreciation, while WDV is more complicated.
Both methods have their advantages and disadvantages. SLM provides a simple and consistent method, suitable for assets with a predictable lifespan, while WDV offers a more accurate representation of an asset's value, particularly for assets with rapid depreciation or technological advancements. However, WDV has some limitations, such as the complexity of calculation compared to SLM and the fluctuating depreciation expenses that can make it more challenging to analyze and compare assets.
Comparative Table: SLM vs WDV Method of Depreciation
The main difference between the Straight-Line Method (SLM) and Written Down Value (WDV) method of depreciation lies in the way the depreciation is calculated and the impact on the asset's book value over time. Here is a table comparing the two methods:
| Parameter | SLM (Straight-Line Method) | WDV (Written Down Value) |
|---|---|---|
| Definition | A method where asset value is evenly depreciated every year. | A method where asset value is not evenly depreciated every year. |
| Calculation | Depreciation is calculated on the original cost of the asset. | Depreciation is calculated on the written-down value of the asset. |
| Depreciation Rate | The amount of depreciation charged is constant every year. | The amount of depreciation charged diminishes every year. |
| Asset Value | The book value of the asset is completely written off (i.e., reduced to zero or its salvage value). | The book value of the asset is not completely written off. |
| Ease of Understanding | Easier to understand and determine depreciation. | More complicated than the straight line method. |
In summary, SLM provides a simple and consistent method, suitable for assets with a predictable lifespan, while WDV offers a more accurate representation of an asset's value, particularly for assets with rapid depreciation or technological advancements. The choice between SLM and WDV depends on the specific characteristics of the asset and the business's needs.
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