Do we have an option to use the WDV method for depreciation. At the moment only the linear option is available. The Indian tax system is based on wdv method.
As you said we have only linear for the moment.
Could you document how the “WDV” method should be computed?
Although Companies Act in India doesn’t require any specific method to be chosen, the income tax limits the choice for selecting options. SLM( straight line method) is allowed by the Companies Act, but the Income-tax Act requires calculation of depreciation by WDV ( written down value) Method only. Certain exceptions are there but not common.
Schedule II of the Companies Act, 2013 contains an useful guide for calculation of depreciation. Although it doesn’t contain the rates to be used, it provides the useful life to be used for different classes of assets that auditors use.
And based on those periods, rates for WDV is calculated.
The formula used to calculate WDV rates is –
Rate of Depreciation (R) = 1 – [s/c]1/n
s = scrap value at the end of period ‘n’;
c = Written down value at present; and
n = useful life of the assets (as per gidnce of Schedule II of Companies Act )
In the formula it’s the power value.
Rate of Depreciation (R) = 1 – [s/c] to the power of 1/n
Suppose a Plant is purchased for ₹ 10 lakhs and its estimated useful life is 10 years. The scrap value at the end of the useful life is estimated to be ₹ 2.5 lakhs. Calculate the WDV Rates.
Here, we can use the above formula and accordingly,
WDV Rate = 1 – [2.5/10] x to power of 1/10
i.e. 1 – 0.250.1 = 12.95% (approx.)
Now, you can use this WDV rate to calculate depreciation. Depreciation for the year is the rate in percentage multiplied by the WDV at the beginning of the year. For example, for Year I – Depreciation = 10,00,000 x 12.95% i.e. 1,29,500. New WDV for subsequent year will be previous WDV minus Depreciation already charged. i.e. WDV for year II will be 10,00,000 – 1,29,500 i.e., 8,70,500.
Accordingly, WDV and Depreciation for all years.
Year 0 1. 2… 10
WDV at begin(₹ in lakhs)10 10. 8.705…2.870
Depreciation(₹ in lakhs - 1.295. 1.127…0.370
WDV at end (₹ in lakhs). -. 8.705. 7.578…2.500
Here is a nice article which explains how the method works: