Difference Between SLM and WDV Explained with Example
The difference between SLM and WDV is an important accounting concept for students preparing for school exams and daily business tasks. SLM (Straight Line Method) and WDV (Written Down Value) are two main ways to calculate depreciation. Understanding them helps you solve questions in accountancy papers and make better business decisions.
| Basis | Straight Line Method (SLM) | Written Down Value (WDV) |
|---|---|---|
| Depreciation Basis | Calculated on original asset cost | Calculated on asset’s book value after previous depreciation |
| Depreciation Amount | Same amount every year | Decreases every year |
| Formula | Annual Depreciation = (Cost – Scrap Value) / Useful Life | Annual Depreciation = Book Value × Rate (%) |
| Asset Value at End | Becomes zero or scrap value | Never becomes zero (keeps reducing) |
| Best for | Assets with equal utility each year (e.g., furniture, buildings) | Assets with high use initially (e.g., machines, vehicles) |
| Another Name | Fixed Installment Method | Diminishing Balance Method |
| Example | Desk, computer | Car, machine |
Difference Between SLM and WDV Explained
The difference between SLM and WDV lies in how depreciation is charged. SLM reduces an asset's value by a fixed amount yearly, while WDV uses a fixed percentage on the asset’s remaining value each year. This results in higher depreciation in early years under WDV and an equal amount under SLM.
Straight Line Method (SLM) of Depreciation
The Straight Line Method is a widely used way to compute depreciation. In SLM, you deduct the same amount each year from the asset’s original cost. This method is simple and suitable for assets that give equal benefit over their life. Students often use SLM in practical projects and board exams.
SLM Formula
Annual Depreciation = (Cost of Asset – Scrap Value) / Useful Life (years)
Advantages of SLM
- Simple to calculate and explain
- Makes yearly expense planning easy
- Good for assets with steady use
Where is SLM Used?
SLM is ideal for furniture, office equipment, and buildings. It is best when an asset’s benefit remains constant every year.
Written Down Value (WDV) Method of Depreciation
The Written Down Value (WDV) method calculates depreciation on the reducing balance of the asset. Here, you apply the same percentage rate to the asset’s value as it decreases every year. This method better matches assets whose usefulness drops faster in the initial years.
WDV Formula
Annual Depreciation = Book Value at Start of Year × Depreciation Rate (%)
Advantages of WDV
- More realistic for machines which lose value faster early on
- Suits assets where maintenance costs rise with age
- Accepted by many tax authorities and as per Indian Accounting Standards
Where is WDV Used?
WDV is preferred for plant, machinery, vehicles, and technical equipment. It is suitable when assets are more efficient in early years but wear out quickly.
Key Differences: SLM vs WDV Comparison Table
The following table gives a quick comparison for easy exam revision:
| Feature | SLM | WDV |
|---|---|---|
| Basis of Depreciation | Original cost | Book value (after last year's depreciation) |
| Depreciation Amount | Constant every year | Decreases every year |
| Asset Value at End | May become zero/scrap value | Never becomes zero |
| Main Use | Furniture, buildings | Machinery, vehicles |
| Simplicity | Very easy | More calculation needed |
| Example | Furniture depreciated ₹2,000 per year | Machine depreciated at 10% of reducing balance |
SLM vs WDV – Which Depreciation Method is Better?
SLM is better for assets that provide consistent benefit yearly. WDV suits assets that lose value quickly or need high maintenance as they age. The choice depends on asset type, accounting standards, and sometimes, tax laws. Many businesses use SLM for accounting and WDV for tax purposes.
Numerical Example: Difference Between SLM and WDV
Let’s say, a company buys a machine for ₹10,000, with a useful life of 5 years and no scrap value. Depreciation rate is 20% if using WDV.
SLM Calculation:
Annual Depreciation = (₹10,000 – ₹0) / 5 = ₹2,000 every year.
- Year 1: ₹2,000
- Year 2: ₹2,000
- Year 3: ₹2,000
- Year 4: ₹2,000
- Year 5: ₹2,000
WDV Calculation:
- Year 1: ₹10,000 × 20% = ₹2,000 (Book value after depreciation = ₹8,000)
- Year 2: ₹8,000 × 20% = ₹1,600 (Book value after depreciation = ₹6,400)
- Year 3: ₹6,400 × 20% = ₹1,280 (Book value after depreciation = ₹5,120)
- Year 4: ₹5,120 × 20% = ₹1,024 (Book value after depreciation = ₹4,096)
- Year 5: ₹4,096 × 20% = ₹819 (Book value after depreciation = ₹3,277)
In SLM, depreciation amount is fixed, but in WDV, it reduces each year.
When to Use SLM or WDV in Real Life
Use SLM when the asset’s usefulness or productivity is steady year after year. Choose WDV for machines or vehicles where wear and tear is faster in the beginning, such as a delivery truck or factory equipment.
For board project work, include proper calculations and reasons for choosing SLM or WDV based on asset type and business needs.
Related Topics to Deepen Your Study
- Methods of Depreciation – An overview of all major ways to calculate depreciation, with examples.
- Straight Line Method – Dedicated explanation and solved questions on SLM for extra practice.
- Accounting Concept of Depreciation – Learn why depreciation is important in accounting.
- Final Accounts – See where depreciation methods are used in financial statements.
- Ledger Accounts – Understand entries for depreciation using SLM or WDV.
- Depreciation Expense vs. Accumulated Depreciation – Learn how these relate under different methods.
At Vedantu, we help students master concepts like SLM and WDV through clear explanations and stepwise problem solving.
In summary, the difference between SLM and WDV guides how you calculate and present depreciation for various assets. Knowing which method to use helps in exams and real business situations. Remember to compare both for the best results and refer to the right accounting standards when making a choice.
FAQs on SLM vs WDV: Key Differences in Depreciation Methods
1. What is the difference between SLM and WDV?
Straight Line Method (SLM) and Written Down Value (WDV) are two common methods for calculating depreciation. SLM depreciates an asset evenly over its useful life, while WDV applies a fixed percentage to the asset's reducing balance each year. The key difference lies in how the depreciation amount is calculated: consistently for SLM and progressively decreasing for WDV.
2. What is the main difference between the two methods of depreciation?
The primary difference between SLM and WDV lies in their depreciation calculation. SLM uses a fixed annual depreciation amount, resulting in a constant reduction in asset value. WDV, on the other hand, uses a fixed percentage applied to the remaining asset value each year, leading to a decreasing depreciation charge and a faster initial decline in value. This affects the asset's book value over time.
3. What are the formulas for SLM and WDV methods?
The formulas differ significantly. SLM is: (Cost - Salvage Value) / Useful Life. WDV is: Previous Year's Written Down Value x Depreciation Rate. The depreciation rate in WDV is a fixed percentage.
4. Which method is better: SLM or WDV?
The 'better' method depends on the asset and accounting goals. SLM is simpler and provides a consistent depreciation expense. WDV reflects the faster decline in an asset's value in its early life, aligning more closely with its actual usage and obsolescence. Consider the asset's nature and the desired accounting outcome.
5. Can you give an example explaining SLM and WDV?
Imagine a machine costing ₹100,000 with a ₹10,000 salvage value and a 5-year life. SLM depreciation is ₹18,000 ( (100,000-10,000)/5 ). Using a 20% WDV rate, year 1 depreciation is ₹20,000 (100,000 x 0.20), year 2 is ₹16,000 (80,000 x 0.20), and so on. WDV shows higher initial depreciation than SLM.
6. What is the difference between written down value method and diminishing value method?
They are essentially the same. "Written Down Value (WDV) method" and "Diminishing Balance Method" are synonyms; both refer to the depreciation method where a fixed percentage is applied to the asset's reducing balance each year.
7. How does changing depreciation methods impact profit and tax reports?
Switching methods affects reported profitability and tax liability. WDV generally leads to higher depreciation in early years, lowering reported profits and tax in the short term, and vice versa for SLM. Consistency is key for comparability and transparency.
8. Why do companies sometimes switch between SLM and WDV?
Companies might switch due to changes in asset life estimates, accounting policies, or tax regulations. A switch requires disclosure and may affect reported financial results. Consistency is usually preferred unless there is a justifiable reason for change.
9. What types of assets are best suited to SLM versus WDV?
SLM suits assets with relatively constant value over time, such as land or buildings. WDV is better for assets that depreciate more quickly in their early years, like computers or machinery, reflecting their obsolescence.
10. Are SLM and WDV methods permitted under Indian/International Accounting Standards?
Both SLM and WDV are generally permitted under Indian Accounting Standards (Ind AS) and International Financial Reporting Standards (IFRS), but specific application may depend on the asset's nature and the company's accounting policies. Disclosure of the method used is crucial.
11. What are common mistakes when applying SLM or WDV in project work?
Common errors include incorrect salvage value estimation, inaccurate useful life assessment, and inconsistent application of the chosen method. Careful planning and documentation are essential to avoid errors in project accounting.
