Depreciation accounts for the gradual reduction in the value of an asset over its useful life, and correctly calculating it matters both for accurate financial statements and for claiming the right deduction in your tax computation. Businesses and professionals typically use one of two common methods: the Written Down Value (WDV) method, or the Straight Line Method (SLM).
Under the WDV method (the method prescribed under the Income Tax Act for most block of assets), a fixed percentage is applied each year to the asset's reducing balance — so the depreciation amount is highest in the first year and gradually decreases over time, since it's calculated on a shrinking base. Under the SLM method (commonly used for accounting/book purposes and under Schedule II of the Companies Act), an equal amount of depreciation is charged every year over the asset's useful life, based on its original cost.
This calculator projects your year-by-year depreciation schedule under either method, based on the asset's cost, rate, and useful life you enter — useful for both tax planning and understanding how an asset's book value will reduce over time.
For tax purposes, the Income Tax Act prescribes the Written Down Value (WDV) method for computing depreciation on most classes of assets, at rates specified for each block of assets.
The Companies Act generally expects depreciation based on the useful life of assets as per Schedule II, which is commonly implemented using the Straight Line Method, though WDV is also permitted.
Yes, and this is common — many companies maintain separate depreciation schedules for income tax purposes (as per the Income Tax Act) and for their financial statements (as per the Companies Act), leading to deferred tax adjustments.
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