Straight Line Method and the Written Down Value (WDV) Method of calculating depreciation are crucial for businesses to make informed financial decisions. These methods impact how asset depreciation is accounted for in financial statements, affecting tax liabilities and profit reporting.

What is the Straight Line Method?

The Straight Line Method of depreciation calculates an equal amount of depreciation expense for an asset over its useful life. This method assumes that the asset will provide equal value to the business each year until its retirement or disposal.

Examples of Straight Line Method:

1. A company buys a piece of machinery for $10,000 with a useful life of 10 years and no salvage value. The annual depreciation would be $1,000 each year for 10 years.
2. An office building purchased for $500,000, expected to last 50 years with a salvage value of $50,000, would incur a yearly depreciation of $9,000.

What is the Written-Down value Method?

The Written Down Value Method, also known as the Declining Balance Method, accelerates the depreciation expenses towards the earlier years of an asset's life. It applies a constant rate of depreciation to the net book value of the asset at the beginning of each year, resulting in decreasing depreciation charges over time.

Examples of Written Down Value Method:

1. A vehicle costing $20,000 with an estimated life of 5 years and a residual value of $5,000, depreciated at 20% per year, would have a first-year depreciation of $4,000, then $3,200 in the second year, and so on.
2. Computer equipment purchased for $15,000, depreciated at 30% annually, would have higher depreciation in the initial years, decreasing each year thereafter.

Difference between Straight Line and Written Down Value Method:

Basis	Straight Line Method	Written Down Value Method
Definition	Depreciates an asset by an equal amount annually.	Depreciates an asset by a fixed percentage annually on its diminishing value.
Depreciation Expense	Constant each year.	Higher in the initial years, decreases over time.
Calculation Simplicity	Simple to calculate and easy to understand.	More complex as it involves calculations based on the net book value at the beginning of each year.
Impact on Financials	Even spread of expense over the asset’s life.	Front-loads depreciation, reducing taxable income more significantly in the early years.
Useful Life Impact	Does not consider the changing efficiency or usage of an asset over its life.	Reflects the economic reality of assets that lose value more rapidly in the initial years.
Tax Implications	Less beneficial if aiming for early tax relief.	Beneficial for businesses seeking to maximize tax deductions in the early years of an asset's life.
Examples	Furniture depreciated over 10 years for equal annual expense.	Vehicles or technology with higher depreciation rates initially due to rapid obsolescence.