Depreciation: ISC Class 11 Accounts Notes on SLM and WDV

What Depreciation is about

Weightage: Depreciation belongs to the unit Depreciation, which CISCE weights at 10 of the 80 marks in the ISC Class XI Accountancy Paper I (Theory). Class XI is examined by the school, so your school sets the paper within this weightage.Source: CISCE ISC Accountancy syllabus, examination year 2028, Class XI unit weightage

Key concepts

Meaning, characteristics and causes of depreciation

Depreciation is the allocation of the depreciable amount (cost less estimated residual value) of a fixed asset over its useful life. In simple words, it is the permanent, gradual and continuing fall in the book value of a fixed asset.

Characteristics:

• It applies to fixed (tangible) assets only; for intangibles the equivalent is amortisation, and for wasting assets it is depletion.
• It is a non-cash expense: no money leaves the business when depreciation is charged.
• It is permanent and continuing: it does not reverse when market prices rise.
• It is gradual and charged every year till the end of the asset's useful life.
• It is an estimate, based on cost, useful life and residual value.

Causes:

1. Wear and tear from use (machines, vehicles).
2. Passage of time, even if not used (exposure to weather).
3. Expiry of legal rights (lease, patent, copyright).
4. Obsolescence: newer technology or changed demand makes the asset out of date.
5. Depletion of wasting assets (mines, oil wells).
6. Accidents (permanent loss of value).

Worked example

Suppose a software firm's laptops are in perfect working order, but a new operating system no longer supports them, so they must be replaced after three years instead of five. Which cause of depreciation is this, and how does it affect the depreciation charge? [2 marks]

Try it first, then show the solutionSolution

1. The asset still works but has become out of date: obsolescence.
2. Its useful life is shorter, so the cost is spread over three years, raising the annual charge.

Answer: Obsolescence; the useful life falls to three years, so annual depreciation rises.

Need and objectives of providing depreciation

• Correct profit: depreciation is a cost of earning revenue; without it, profit is overstated (matching principle).
• True financial position: assets appear at a realistic book value in the balance sheet.
• Funds for replacement: charging depreciation reduces the profit available for drawings or distribution, so funds are retained to replace the asset.
• Correct cost of production and pricing.
• Legal and tax requirements: company law requires depreciation before declaring dividends, and income tax law allows depreciation as a deduction.

Factors affecting the amount: cost of the asset (price + freight + installation + other costs of bringing it into use), estimated useful life, estimated residual (scrap) value, and the method chosen.

Worked example

Suppose a trader earns ₹3,00,000 before charging ₹60,000 of depreciation, and withdraws the full profit. What happens when his machine must be replaced? [2 marks]

Try it first, then show the solutionSolution

1. Without depreciation he believes profit is ₹3,00,000 and withdraws it all.
2. Correct profit is ₹2,40,000; withdrawing ₹60,000 extra each year takes out money that should be retained, so funds are not available to replace the machine.

Answer: Profit is overstated by ₹60,000 a year; over-withdrawal leaves no funds to replace the machine.

Straight line method (fixed instalment / original cost method)

Depreciation is a fixed amount every year, calculated on the original cost.

Annual depreciation = (Cost of asset − Estimated residual value) ÷ Estimated useful life

Rate of depreciation = Annual depreciation ÷ Cost × 100

The book value falls in a straight line to the residual value.

Advantages: simple to calculate; the asset can be written down to exactly its residual value; suitable for assets with a fixed life (lease, patents) and little repair cost.

Limitations: total charge (depreciation + repairs) rises over time because repairs increase as the asset ages, while depreciation stays fixed; ignores the higher utility in early years; not accepted by income tax for most assets.

Part-year rule: if an asset is bought or sold during the year, depreciation is for the months it was owned (unless the question says to charge a full year).

Worked example

Suppose a machine costs ₹4,80,000 plus ₹20,000 installation, with a residual value of ₹50,000 after 9 years. Find annual depreciation and the rate on cost under SLM. [2 marks]

Try it first, then show the solutionSolution

1. Cost = 4,80,000 + 20,000 = ₹5,00,000.
2. Annual depreciation = (5,00,000 − 50,000) ÷ 9 = ₹50,000.
3. Rate = 50,000 ÷ 5,00,000 × 100 = 10%.

Answer: ₹50,000 a year; rate 10% on original cost.

Written down value method (diminishing balance / reducing instalment)

Depreciation is a fixed percentage of the book value (written down value) at the beginning of each year, so the amount falls every year.

Depreciation for the year = Opening book value × Rate ÷ 100

The book value never reaches zero.

Advantages: early years (higher utility, low repairs) carry more depreciation and later years (lower utility, high repairs) carry less, so the total charge is fairly even; accepted by income tax; suits plant and machinery, vehicles and assets that face obsolescence.

Limitations: the asset is never fully written off; the rate is harder to fix; calculations take longer.

SLM vs WDV

Basis	SLM	WDV
Base	Original cost	Opening book value
Amount	Same every year	Falls every year
Book value	Can reach zero / scrap value	Never zero
Total charge with repairs	Rises with age	Roughly even
Income tax	Generally not accepted	Accepted
Suitable for	Patents, leases, furniture	Plant, machinery, vehicles

Worked example

Suppose the machine above (₹5,00,000) is depreciated at 20% p.a. under WDV. Find depreciation for the first three years and the book value at the end of the third year. [3 marks]

Try it first, then show the solutionSolution

1. Year 1: 5,00,000 × 20% = ₹1,00,000; book value ₹4,00,000.
2. Year 2: 4,00,000 × 20% = ₹80,000; book value ₹3,20,000.
3. Year 3: 3,20,000 × 20% = ₹64,000; book value ₹2,56,000.

Answer: Depreciation ₹1,00,000, ₹80,000, ₹64,000; book value after three years ₹2,56,000.

Recording: charging to the asset account vs provision for depreciation

Method 1: depreciation charged to the asset account

• Depreciation A/c Dr; To Asset A/c (yearly).
• Profit and Loss A/c Dr; To Depreciation A/c (closing).
• The asset account shows the written down value; the balance sheet shows the asset at book value only.

Method 2: provision for depreciation (accumulated depreciation) account

• Depreciation A/c Dr; To Provision for Depreciation A/c (yearly).
• Profit and Loss A/c Dr; To Depreciation A/c.
• The asset account stays at original cost; the provision account accumulates depreciation. The balance sheet shows cost less accumulated depreciation.
• When an asset is sold, its accumulated depreciation is transferred out of the provision account: Provision for Depreciation A/c Dr; To Asset A/c (or To Asset Disposal A/c).

Method 2 shows the original cost and total depreciation separately (useful for replacement decisions and required for companies).

Worked example

Suppose furniture costing ₹1,20,000 is depreciated by ₹24,000 in its first year. Show how it appears in the balance sheet at the year-end under each method. [2 marks]

Try it first, then show the solutionSolution

1. Method 1: Furniture A/c is credited ₹24,000; balance sheet shows Furniture ₹96,000.
2. Method 2: Furniture A/c stays at ₹1,20,000; Provision for Depreciation ₹24,000; balance sheet shows 'Furniture 1,20,000 less Provision for depreciation 24,000 = 96,000'.

Answer: Both give ₹96,000; Method 2 also shows the cost ₹1,20,000 and accumulated depreciation ₹24,000.

Sale of an asset; asset disposal account

On sale:

1. Charge depreciation up to the date of sale.
2. Book value on sale = Cost − Accumulated depreciation up to that date.
3. Profit or loss on sale = Sale proceeds − Book value.

Without a disposal account (asset account method): Bank Dr, To Asset (sale proceeds); then the remaining balance (loss) is transferred: Profit and Loss A/c Dr, To Asset A/c; or for a profit: Asset A/c Dr, To Profit and Loss A/c.

With an asset disposal account (used mainly with the provision method):

• Asset Disposal A/c Dr; To Asset A/c (original cost).
• Provision for Depreciation A/c Dr; To Asset Disposal A/c (accumulated depreciation on the asset sold).
• Bank A/c Dr; To Asset Disposal A/c (sale proceeds).
• Balance = profit (credit P&L) or loss (debit P&L).

The disposal account brings all figures for the asset sold into one place.

Worked example

Suppose a machine costing ₹2,50,000 has accumulated depreciation of ₹1,12,000 on the date of sale and is sold for ₹1,25,000. Prepare the asset disposal account in outline. [3 marks]

Try it first, then show the solutionSolution

1. Dr: To Machinery A/c 2,50,000 (original cost).
2. Cr: By Provision for Depreciation 1,12,000; By Bank 1,25,000.
3. Balance (loss) = 2,50,000 − 1,12,000 − 1,25,000 = ₹13,000: By Profit and Loss A/c 13,000.

Answer: Loss on sale ₹13,000 (book value ₹1,38,000 − sale price ₹1,25,000).

Depreciation in real life

Each concept, met in an everyday situation. Read the situation, answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Topics in this chapter

• Recording Depreciation: Provision for Depreciation and Sale of an Asset
• Depreciation: Meaning, Straight Line and Written Down Value Methods

Depreciation: key facts

SLM annual depreciation

Depreciation = (Cost − Residual value) ÷ Useful life

Cost includes freight, installation and other costs to bring the asset into use.

SLM rate

Rate = Annual depreciation ÷ Cost × 100

WDV depreciation

Depreciation = Opening book value × Rate ÷ 100

Part-year depreciation

Depreciation = Annual amount × Months used ÷ 12

Profit or loss on sale

Profit (loss) = Sale proceeds − (Cost − Accumulated depreciation to the date of sale)

Depreciation: diagrams to practise

Practise each one on paper: draw it from the checklist, then tick off every label.

How the school exam asks Depreciation

The question patterns to expect, and the method that works for each.

Tricks to remember Depreciation

Short memory aids. Say each one aloud once, then use it on a question the same day.

• SLM = Same Little Money

  Straight Line Method charges the Same amount every year on original cost.

  Use it when: Telling the methods apart.

• WDV = What's Done Vanishes

  Each year's rate is applied only to what is left after earlier depreciation.

  Use it when: WDV calculations.

• Disposal: cost in, three out

  Debit cost; credit accumulated depreciation, sale proceeds, and the loss (or debit the profit).

  Use it when: Asset disposal account.

Depreciation: exam-level solved questions

Ordered from exam level to HOTS. Cover the solution, write your own, then compare step by step.

Case-study practice (Section A style)

Read the situation, then answer every part. In a school exam set on the board pattern this is a 6-mark question split into 1 + 2 + 2 + 1 marks.

Where the marks are

How a typical answer is split into step marks. Show every step: a right final answer alone rarely earns full marks.

Where students lose marks in Depreciation

The slips examiners see most often, and what to write instead.

• ✗Mistake: Charging a full year's depreciation on an asset bought or sold mid-year

  Depreciation is for the period the asset was owned and used; the question's dates decide the months.

  ✓Do this: Write the months beside each figure (e.g. '6 m') in the working table.

  Usually costs: 1-2 marks and every later figure.

• ✗Mistake: Computing WDV depreciation on original cost

  Under WDV the base is the opening book value of each year.

  Wrong working

  Year 2: 5,00,000 × 20% = 1,00,000.

  Right working

  Year 2: 4,00,000 × 20% = 80,000.

  ✓Do this: Carry the book value forward line by line.

  Usually costs: 1-2 marks.

• ✗Mistake: Forgetting depreciation up to the date of sale

  Book value on the date of sale must include the current year's depreciation to that date; otherwise the profit or loss is wrong.

  ✓Do this: Charge depreciation to the date of sale first, then compare the sale price with the book value.

  Usually costs: 1-2 marks.

• ✗Mistake: Leaving the sold asset's accumulated depreciation in the provision account

  Once an asset is sold, its accumulated depreciation no longer relates to any asset held.

  ✓Do this: Transfer it: Provision for Depreciation A/c Dr To Asset Disposal (or Asset) A/c.

  Usually costs: 1 mark and the provision balance.

• ✗Mistake: Adding installation costs to repairs instead of the asset

  Costs to bring the asset into working condition (freight, installation, trial runs) are capital expenditure and part of cost.

  ✓Do this: Cost = price + all costs until the asset is ready for use.

  Usually costs: 1 mark and every depreciation figure.

Practice questions on Depreciation

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

1. Q1 · 1 mark · MCQExam level

   Under the straight line method, depreciation is calculated on:
   (a) book value
   (b) original cost
   (c) market value
   (d) replacement cost

   Hint

   Fixed instalment.

   Answer

   (b) original cost.

2. Q2 · 2 marks · Short answerExam level

   State four causes of depreciation.

   Hint

   Use, time, law, technology.

   Answer

   Wear and tear from use; passage of time; expiry of legal rights (lease, patent); obsolescence (also depletion and accidents).

3. Q3 · 4 marks · Short answerExam level

   Distinguish between SLM and WDV on four bases.

   Hint

   Base, amount, book value, tax.

   Answer

   Base: original cost vs opening book value. Amount: constant vs decreasing. Book value: can become zero/scrap vs never zero. Income tax: generally not accepted vs accepted (also total charge with repairs: rising vs fairly even).

4. Q4 · 2 marks · Short answerHarder exam level

   Suppose a computer is bought on 1st August 2025 for ₹90,000 and depreciated at 15% p.a. under SLM. Books close on 31st March. Find depreciation for 2025-26 and the book value on 31st March 2027.

   Hint

   8 months in the first year.

   Answer

   Annual = ₹13,500; 2025-26 = 13,500 × 8/12 = ₹9,000; 2026-27 = ₹13,500; book value = 90,000 − 22,500 = ₹67,500.

5. Q5 · 3 marks · Short answerHarder exam level

   Suppose a machine costing ₹2,00,000 bought on 1st April 2024 is depreciated at 10% p.a. WDV and sold on 30th September 2026 for ₹1,40,000. Find the profit or loss on sale.

   Hint

   Two full years and six months.

   Answer

   2024-25: 20,000 → 1,80,000; 2025-26: 18,000 → 1,62,000; 2026-27 (6 m): 8,100 → 1,53,900. Loss = 1,53,900 − 1,40,000 = ₹13,900.

6. Q6 · 2 marks · Short answerHarder exam level

   Pass journal entries for depreciation of ₹18,000 under (a) the asset account method and (b) the provision method, including the closing entry.

   Hint

   Only the credit differs.

   Answer

   (a) Depreciation A/c Dr 18,000 To Asset A/c 18,000. (b) Depreciation A/c Dr 18,000 To Provision for Depreciation A/c 18,000. Closing (both): Profit and Loss A/c Dr 18,000 To Depreciation A/c 18,000.

7. Q7 · 3 marks · Short answerHarder exam level

   Suppose an asset costing ₹5,00,000 has accumulated depreciation of ₹1,85,000 and is sold for ₹3,40,000. Show the asset disposal account entries and the result.

   Hint

   Profit this time.

   Answer

   Dr: Asset A/c 5,00,000; P&L (profit) 25,000. Cr: Provision for Depreciation 1,85,000; Bank 3,40,000. Book value 3,15,000; profit = 3,40,000 − 3,15,000 = ₹25,000.

8. Q8 · 3 marks · Short answerHOTS / competency

   Suppose two identical machines cost ₹6,00,000 each. One is depreciated by SLM at 20% and the other by WDV at 20%. After how many full years does the WDV machine first have the higher book value, and what are the two book values then?

   Hint

   Compare year by year.

   Answer

   SLM book values: 4,80,000; 3,60,000; 2,40,000. WDV: 4,80,000; 3,84,000; 3,07,200. After year 1 they are equal; after 2 full years WDV is higher: ₹3,84,000 vs ₹3,60,000.

9. Q9 · 2 marks · Short answerHOTS / competency

   Suppose a firm wants to replace a machine and also show the total depreciation charged on it so far. Which recording method should it use and why?

   Hint

   Cost and accumulated depreciation separately.

   Answer

   The provision for depreciation method: the asset stays at original cost and the provision shows total depreciation, so both the original investment and the amount written off are visible for replacement planning.

10. Q10 · 2 marks · Short answerHarder exam level

    Suppose an asset costing ₹2,40,000 is depreciated under SLM so that its book value after 6 years equals its residual value of ₹24,000. Find the rate on cost, and the book value after 4 years.

    Hint

    Depreciable amount ÷ life.

    Answer

    Annual = (2,40,000 − 24,000) ÷ 6 = ₹36,000; rate = 15%; book value after 4 years = 2,40,000 − 1,44,000 = ₹96,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1. 1.SLM annual depreciation formula?Show answer

   (Cost − Residual value) ÷ Useful life.

2. 2.WDV base?Show answer

   Opening book value each year.

3. 3.Is depreciation a cash expense?Show answer

   No; it is a non-cash expense.

4. 4.Entry under the provision method?Show answer

   Depreciation A/c Dr To Provision for Depreciation A/c.

5. 5.Profit on sale formula?Show answer

   Sale proceeds − (Cost − Accumulated depreciation to date of sale).

6. 6.Is change of method in the ISC Class 11 syllabus?Show answer

   No; it is not required.

Quick revision checklist

The night before the exam: can you do each of these without looking?

• ☐Depreciation: gradual, permanent, non-cash fall in value of fixed assets.
• ☐Causes: wear and tear, time, legal expiry, obsolescence, depletion, accidents.
• ☐SLM: same amount on cost; WDV: same rate on book value.
• ☐Part year: × months/12.
• ☐Asset account method: credit the asset; provision method: credit the provision.
• ☐On sale: depreciate to the date of sale; compare price with book value.
• ☐Disposal A/c: cost Dr; provision, proceeds, loss Cr.
• ☐Change of method: not in the syllabus.

Depreciation: frequently asked questions