1. Straight Line Method:
Under this method, a fixed percentage on the original cost of the asset is written off every year so that the value of the asset become zero at the end of its effective working life. The amount of depreciation charged annually will be constant. This method is also known as “Fixed Instalment Method” or“Original Cost method”.
Depreciation = \(\frac{\text{original cost - Scrap value}}{\text{Expected working life}}\)
2. Written down value method:
Under this method, depreciation is charged on the book value of asset. This method uses a fixed percentage on the book value of the asset at the beginning of every year. The amount of depreciation charged in each period is not uniform and it reduces year after year. This method is also known as “Diminishing value method” or “Reducing Balance method”.
