Advantages of Written Down Value Method
Written down value method has the following advantages:
- This method is based on an assumption that the benefits from the asset go on diminishing with the passage of time. Therefore, it requires proper allocation of cost because higher depreciation is charged in earlier years when the asset's utility is more as compared to later years when it becomes less useful;
- It affects almost equal burden on profit or loss account of depreciation and repair expenses taken together every year;
- Income Tax Act accepts this method for tax purposes;
- As a large portion of cost is written-off in earlier years, loss due to obsolescence gets reduced;
- This method is suitable for fixed assets, which lasts for long and which require increased repair and maintenance expenses with passage of time. It can also be used where obsolescence rate is high.