AS 10 – Depreciation Methods: SLM, WDV, and Units of Production

## Depreciation Methods under AS 10

### Preliminary: Land vs Building

Land and building are separable assets and must be accounted for separately, even when acquired together.

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### Key Terms

• Residual Value (Scrap / Salvage Value): Estimated amount recoverable at end of useful life
• Depreciable Amount: Cost − Residual Value
• Carrying Amount (CA) / Net Block: Gross Block − Accumulated Depreciation

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### Method 1 – Straight Line Method (SLM)

$$\text{Annual Depreciation} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$$

• Depreciation is the same amount every year
• Residual value is relevant — reduces the depreciable base
• CA reduces linearly to residual value at end of life

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### Method 2 – Written Down Value Method (WDV)

$$\text{Annual Depreciation} = \text{WDV Rate} \times \text{Opening Carrying Amount}$$

• Depreciation is higher in early years, declining over time
• Residual value is irrelevant in WDV calculations
• CA approaches (but mathematically never reaches) zero

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### Method 3 – Units of Production Method

$$\text{Depreciation per unit} = \frac{\text{Cost} - \text{Residual Value}}{\text{Total Estimated Capacity (units)}}$$

$$\text{Annual Depreciation} = \text{Depn per unit} \times \text{Units produced in the year}$$

• Depreciation varies each year based on actual output
• Suitable when wear-and-tear is driven by usage, not time
• Total depreciation over asset's life = Depreciable Amount (regardless of pattern)

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### Method Comparison