Two basic methods of charging depreciation are:
Straight line method: This method calculates fixed amount of depreciation every year which is calculated keeping in view the useful life of assets and its salvage value at the end of its useful life.
Written down value method: This method uses current book value of the asset for computing the amount of depreciation for the next period. It is also known as declining balance method.
Differences:
1. Equal amount of depreciation is charged in straight line method. Amount of depreciation 6 goes on decreasing every year in written down value method.
2. Depreciation is charged on original cost in straight line method. The amount is calculated on the book value every year.
3. In straight line method the value of asset can come to zero but in written down value method this can never be zero.
4. Generally rate of depreciation is low in case of straight line method but it is kept high in case of written down value method.
5. It is suitable for assets in which repair charges are less and the possibility of obsolescence is less. It is suitable for the assets which become obsolete due to changes in technology.