State four merits of written down value method of providing depre…

Question

State four merits of written down value method of providing depreciation.

✓

Answer

Merits:

Easy Calculation: It is easy to calculate the depreciation under this method, even if some new assets are purchased year after year. Different assets are grouped for the purpose of providing depreciation.
Equal charge against income: In this method, the total burden on Profit & Loss Account in respect of depreciation and repairs put together remains almost equal year after year. This is so because in the initial years depreciation is more in comparison to repair charges whereas, in the later years, as the asset gets older, the amount of depreciation goes on decreasing while the expenses on repairs go on increasing, thus keeping the combined charge of depreciation and repairs almost uniform.
No Undue pressure in later year: The efficiency and usefulness of a machine is more in the earlier years than in later years. Hence, the depreciation in first few years should be more in comparison to the later years. This is ensured by adopting the Diminishing Balance Method.
Balance of asset is never written off to zero: This method ensures that the asset is never reduced to zero so that some depreciation, however small, is debited to Profit & Loss Account so long as the asset remains in use.
Approved method by income Tax Authorities: This method of providing depreciation is permissible under Income Tax regulations.

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2012
April 1	Purchased a second-hand machinery for ₹ 40,000.
April 1	Spent ₹ 10,000 on repairs for making it serviceable.
Sept. 30	Purchased additional new machinery for ₹ 20,000.
Dec. 31	Repairs and renewals of machinery ₹ 2,000.
2013
March 31	Depreciate the machinery at 10% p.a.

Cheques deposited but not yet credited by bank ₹ 6,000.
Cheques dishonoured and debited by bank but not given effect to it in the Ledger ₹ 800.
Bank charges debited by bank but Debit Memo not received from bank ₹ 50.
Interest on overdraft excess credited in the Ledger ₹ 200.
Wrongly credited by bank to account, deposit of some other party ₹ 900.
Cheques issued but not presented for payment ₹ 400.

2017
Jan 5	Sold to Ramesh Stationery House, Kolkata
	50 Dozen Pencils @ ₹ 20 per doz.
	20 Dozen Pens @ ₹ 5 per Pen
	Trade Discount 10%
Jan 8	Sold to Gupta Stationery Shop, Kanpur
	10 Dozen Note Books @ ₹ 60 per doz
	15 Gross Rubbers @ ₹ 10 per doz.
Jan 20	Sold old newspapers for ₹ 150
Jan 24	Sold to Modern Stationery House, Lucknow for Cash
Jan 24	25 Dozen Pencils @ ₹ 22 per doz.
Jan 28	Sold to Ali Mohammad & Sons, Allahabad
	10 Reams of Paper @ ₹ 80 per Ream
	Discount 15%
Jan 31	Sold old furniture to Kedar Nath & Co., Allahabad on credit ₹ 2,200

Goods destroyed by Fire for ₹ 5,000.
Paid by cheque ₹ 25,000 as wages on installation of a Machinery.
Issued a cheque in favour of M/s Parmatma Saran & Sons on account of purchase of goods ₹ 75,000.
Goods sold costing ₹ 60,000 to M/s Kalu Sons at an invoice price 10% above cost less 5% Trade discount.