Depreciation: methods and entries
1 min read
Updated 29 Sep 2026
4 views
AI summary
Spreading the cost of an asset over its useful life, with examples.
4 sections
Why
A machine bought for ₹5,00,000 helps the business for years, so its cost is charged to profit gradually through depreciation.
Two common methods
| Method | How | Example: ₹5,00,000 machine |
|---|---|---|
| Straight Line (SLM) | Same amount every year = (Cost − Residual value) ÷ Useful life | 10-year life, ₹50,000 residual → ₹45,000 a year |
| Written Down Value (WDV) | Fixed % on the reducing balance | 15% → Year 1 ₹75,000, Year 2 ₹63,750… |
Companies follow the useful lives in Schedule II of the Companies Act. Income tax uses separate block-wise WDV rates, so tax depreciation often differs from book depreciation.
Journal entry (F7)
Depreciation A/c (Indirect Expenses) Dr 45,000
To Machinery A/c (Fixed Assets) 45,000Some businesses credit an Accumulated Depreciation account instead, keeping the asset at cost.
Tips
- Charge depreciation only from the date the asset is put to use.
- Assets bought mid-year: charge for the months used (books) — tax rules allow half the rate if used less than 180 days in the year.
- Land is not depreciated.
PreviousCapital vs revenue expenditure Next in Accounting Concepts Advance received and advance paid
Was this guide helpful?