Recognition by Income Tax Act
Straight line method is not recognised by Income Tax Act while written down value method is recognised by the Income Tax Act.
Straight line method is suitable for assets in which repair charges are less, the possibility of obsolescence is less and scrap value depends upon the time period involved. Such as freehold land and buildings, patents, trade marks, etc. Written down value method is suitable for assets, which are affected by technological changes and require more repair expenses with passage of time such as plant and machinery, vehicles, etc.
Basis of Difference
Straight Line Method
Written Down Value Method
1. Basis of charging depreciation
2. Annual depreciation charge
3. Total charge against
profit and loss account in respect of depreciation
4. Recognition by income tax law
Fixed (Constant) year
Unequal year after year. It increases in later years.
It is suitable for assets in which repair charges are less, the possibility of
and obsolescence is low
Scrap value depends upon expenses the time period involved time.
Book Value (i.e. original
ciation cost less depreciation
charged till date)
Declines year after year
Almost equal every year.
It is suitable for assets,
which are affected by
and obsolescence is low and require more repair expenses with passage of time.
Fig. 7.3: Comparison of straight line and written down value method