CA Foundation Accounting Depreciation: Methods & Journal Entries

Every year, thousands of CA Foundation students lose marks in the Depreciation chapter — not because they do not understand the concept, but because they apply the wrong method, miss partial-year calculations, or skip working notes. 

A student may know the Straight Line Method formula, but still get the wrong answer because they include freight costs in the asset's cost. Another may calculate depreciation correctly but lose marks for not showing how the provision account is adjusted when an asset is sold. These are precise, avoidable errors. Here, we’ll address them directly.

CA Foundation Accounting Depreciation: Methods & Journal Entries Detailed Video

The video is a live practice session on the Depreciation chapter for CA Foundation students. The faculty works through multiple problems in real time, covering the Written Down Value (WDV) Method, the Straight Line Method (SLM), the Sum of Years' Digits (SYD) Method, and Provision for Depreciation accounts.

The session focuses on four key areas:

1. Correct asset cost calculation: what to include and what to exclude

2. Depreciation computation: applying the right formula for each method

3. Ledger preparation: how to write Machinery, Provision for Depreciation, and Disposal accounts

4. Profit or loss on sale: how to calculate it and where to record it

Our faculty also explains how to handle method changes mid-way, partial-year depreciation, and asset revaluation. Throughout the session, working notes are treated as mark-earning steps, not optional additions.

Meaning of Depreciation

Depreciation means the reduction in the value of a fixed asset over time because of usage, wear and tear, passage of time, or obsolescence.

Assets like machinery, furniture, vehicles, and computers lose value every year. This reduction is treated as an expense in accounting.

Features of Depreciation

• It is charged only on fixed assets.

• It is a non-cash expense.

• It reduces the book value of assets.

• It follows the matching principle of accounting.

• It is charged every accounting year.

Causes of Depreciation

Different factors cause depreciation in business assets.

• Wear and Tear: Continuous use of machinery and equipment reduces efficiency over time.

• Passage of Time: Some assets lose value simply because of time, even if they are not used regularly.

• Obsolescence: Old machines become outdated because of new technology.

• Depletion: Natural resources like mines and oil wells are reduced with extraction.

Objectives of Charging Depreciation

Charging depreciation is important for proper accounting treatment.

• Correct Profit Calculation: Depreciation is treated as an expense. Without it, profit becomes overstated.

• Correct Asset Valuation: It helps show assets at proper book value in the Balance Sheet.

• Replacement of Assets: Regular depreciation creates a provision for future replacement of assets.

• Compliance with Accounting Principles: It follows the matching concept and the conservatism principle.

Methods of Depreciation

Different methods are used to calculate depreciation depending on the nature of the asset.

1. Written Down Value Method (WDV)

Under the WDV Method, depreciation is charged on the opening book value of the asset every year.

The depreciation amount reduces every year because the book value decreases annually.

Formula of WDV Method

Depreciation = Opening Book Value × Rate% 

Features of the WDV Method

• Depreciation amount decreases every year.

• Suitable for machinery and equipment.

• Asset value never becomes zero completely.

• Commonly used in practical accounting.

Example of WDV Method

If machinery worth ₹1,00,000 is depreciated at 10%:

2. Straight Line Method (SLM)

Under the Straight Line Method, an equal amount of depreciation is charged every year.

Formula of SLM

Depreciation = Useful Life / Cost−Scrap Value​ ​

Features of SLM

• Equal depreciation every year

• Simple calculation

• Suitable for assets with fixed useful life

• Asset value becomes equal to scrap value at the end

Example of SLM

Cost of Machinery = ₹1,20,000
Scrap Value = ₹20,000
Useful Life = 5 years

Annual Depreciation:

₹(1,20,000 − 20,000) ÷ 5 = ₹20,000

3. Sum of Years’ Digits Method (SYD)

This method charges higher depreciation in earlier years and lower depreciation in later years.

Formula of SYD

Sum of Years Digits = 2 / n(n+1)​​

Where:

• n = useful life of the asset

Features of the SYD Method

• Higher depreciation in initial years

• Useful for technology-based assets

• Depreciation reduces gradually

Journal Entries for Depreciation

Journal entries are very important in CA Foundation Accounting questions.

1. Journal Entry for Asset Purchase

When machinery is purchased:

2. Journal Entry for Depreciation

3. Transfer of Depreciation to Profit & Loss Account

4. Journal Entry Under Provision for Depreciation Method

5. Journal Entry for Sale of Asset

When machinery is sold:

Calculation of Book Value

Book value means the value of the asset after deducting accumulated depreciation.

Formula of Book Value

Book Value = Cost of Asset − Accumulated Depreciation

This value is important for calculating profit or loss on asset sale.

Profit or Loss on Sale of Asset

When an asset is sold, compare the sale value with the book value.

Formula

Profit or Loss = Sale Price − Book Value

• If the sale price is higher than the book value, it is a profit.

• If the sale price is lower than the book value, it is a loss.

Provision for Depreciation

Provision for depreciation means accumulated depreciation maintained in a separate account.

Under this method:

• Asset account remains at original cost.

• Depreciation is credited to the Provision for Depreciation Account.

• On the sale of the asset, the accumulated depreciation related to the sold asset is transferred.

Advantages of the Provision Method

• Original asset cost remains visible.

• Easier to track accumulated depreciation.

• Helpful in large organizations.

Partial Year Depreciation

Sometimes assets are purchased or sold during the year. In such cases, depreciation is charged only for the period of use.

Formula for Partial Year Depreciation

Depreciation for Months=Annual Depreciation × 12 / Months Used​

Example

Annual depreciation = ₹24,000
Machine used for 6 months

Depreciation = ₹24,000 × 6/12 = ₹12,000

Change in Depreciation Method

A business may change its depreciation method because of a revised accounting policy or a change in asset usage patterns.

For example:

• WDV to SLM

• SLM to WDV

The revised depreciation is calculated prospectively using the revised book value.

Revaluation of Assets

Sometimes asset value is revised because of market changes or reassessment. After revaluation:

• The new book value becomes the base value.

• Future depreciation is calculated on the revised value.

Depreciation is a scoring topic in the CA Foundation Accounting when concepts, calculations, and journal entries are practised properly. Questions usually test practical application rather than direct theory. A proper understanding of WDV, SLM, SYD, provision for depreciation, and disposal accounting helps in solving questions accurately.

Strong presentation with proper working notes, correct journal entries, and systematic calculations improves answer quality in examinations. Regular practice of ledger accounts and depreciation adjustments also helps reduce calculation mistakes and improves speed during exams.