WDV vs SLM Depreciation: Deriving the Rate from Schedule II Useful Life
There is a step in company depreciation that trips up more files than it should, and it comes from a change made in 2014 that many working papers never fully absorbed.
Schedule XIV gave you rates. Schedule II gives you useful lives. The rate is now something you derive, not something you look up — and it is derived differently depending on whether the entity applies the straight-line method or the written-down-value method.
This post covers the arithmetic, the choice between the two methods, and the one treatment question that is answered wrongly in a surprising number of files.
The Two Methods, Stated Plainly
SLM — Straight Line Method. The same rupee amount of depreciation every year across the asset's useful life.
Annual depreciation = (Cost − Residual value) ÷ Useful life
SLM rate (% of original cost) = (Cost − Residual value) ÷ (Cost × Useful life) × 100
WDV — Written Down Value Method. A fixed percentage applied each year to the asset's carrying amount, which falls every year. Depreciation is heavy early and light later.
Year 1 depreciation = Opening cost × rate
Year 2 depreciation = (Cost − Year 1 depreciation) × rate
… and so on
The important consequence: under SLM the amount is constant; under WDV the rate is constant and the amount declines. Both must exhaust the depreciable amount over the same useful life, which is why the WDV rate cannot simply be "twice the SLM rate" or any other rule of thumb.
Deriving the WDV Rate from a Useful Life
This is the formula the file needs, and it is the one most often replaced by a guess:
R = [1 − (s ÷ c)^(1 ÷ n)] × 100
where R = WDV rate, in per cent
s = residual value
c = original cost
n = useful life, in years
Residual value under Schedule II is ordinarily not more than 5% of original cost. A company adopting a different residual value has to disclose it and justify it with technical advice.
Note what the formula requires: a non-zero residual value. If you set s = 0, the expression collapses — you can never write an asset down to exactly nil by applying a constant percentage to a declining balance. This is precisely why the 5% residual convention exists in the WDV world, and why an asset schedule that shows WDV depreciation with zero residual value has an arithmetic problem, not a policy choice.
A Worked Example: One Asset, Both Methods
Plant and machinery. Cost ₹10,00,000. Useful life 10 years (Schedule II, general plant and machinery). Residual value 5% = ₹50,000. Depreciable amount ₹9,50,000.
SLM: ₹9,50,000 ÷ 10 = ₹95,000 every year. Rate = 9.5% of original cost.
WDV: R = [1 − (50,000 ÷ 10,00,000)^(1/10)] × 100 = [1 − (0.05)^0.1] × 100 = 25.8866%
| Year | SLM charge | SLM closing WDV | WDV charge | WDV closing balance |
|---|---|---|---|---|
| 1 | 95,000 | 9,05,000 | 2,58,866 | 7,41,134 |
| 2 | 95,000 | 8,10,000 | 1,91,854 | 5,49,280 |
| 3 | 95,000 | 7,15,000 | 1,42,190 | 4,07,091 |
| 5 | 95,000 | 5,25,000 | 78,102 | 2,23,607 |
| 10 | 95,000 | 50,000 | 17,464 | 50,000 |
Both land on ₹50,000 after ten years. But in year 1 the WDV charge is 2.7 times the SLM charge, and by year 5 it has fallen below it — that is the crossover. On a company with a young asset base, the method choice moves profit before tax materially — which is exactly why it is a disclosure item and not a clerical detail.
Which Method Should the Entity Use?
This is not free choice dressed up as policy. AS 10 (Revised) and Ind AS 16 both require the depreciation method to reflect the pattern in which the asset's future economic benefits are expected to be consumed.
- An asset that delivers roughly even service across its life — a building, office furniture, a fit-out — points to SLM.
- An asset that is most productive when new and progressively less so, or that loses value sharply early — vehicles, IT equipment, certain plant — points to WDV.
In practice most Indian companies apply SLM for financial reporting and encounter WDV mainly on the tax side, where the Income-tax Act mandates WDV on blocks of assets. That split is a different problem, covered in Schedule II vs Income Tax depreciation and depreciation both ways.
The audit point is narrower: has the entity actually considered the consumption pattern, or did it inherit a method from a decade ago and never revisit it? A method that has never been reassessed while the asset base changed shape is a finding worth raising.
The Treatment Question That Is Usually Answered Wrong
If a company changes its depreciation method, is that a change in accounting policy or a change in accounting estimate?
It is a change in accounting estimate, applied prospectively.
This changed. Under the old AS 6, a change in depreciation method was treated as a change in accounting policy and required retrospective recomputation, with the resulting surplus or deficiency taken to the statement of profit and loss. Under AS 10 (Revised 2016) and Ind AS 16, the method is an estimate: you change it prospectively, adjust the carrying amount over the remaining useful life, and disclose the change and its effect. There is no retrospective restatement.
Working papers still carrying the old treatment produce a wrong number and a wrong disclosure at the same time. It is worth checking which one your file assumes.
The same prospective logic applies to a revision in useful life or in residual value — both are estimates, both are handled going forward.
Component Accounting Sits On Top of All This
Schedule II requires that where the cost of a part of an asset is significant to the total cost and that part has a different useful life, the part is depreciated separately. An aircraft engine, a building's lifts and HVAC, a plant's major overhaul-cycle components.
That means the SLM-versus-WDV question is not asked once per asset — it is asked once per component, each with its own useful life and therefore its own derived rate. This is where hand-maintained schedules stop being viable at any real asset count, and where files quietly fall back to a single blended rate that the standard does not permit.
What to Automate, and What Not To
Depreciation is the wrong place to ask an AI model to exercise judgement, and the right place to have it do work.
Deterministic — should be computed, never estimated:
- Deriving SLM and WDV rates from useful life and residual value
- Building the year-by-year schedule per asset and per component
- Pro-rating additions and disposals for the part-year they were held
- Reconciling opening gross block + additions − disposals = closing gross block, and the same for accumulated depreciation
- Tying the depreciation charge in the schedule to the amount in the statement of profit and loss
- Flagging assets fully depreciated but still in use, negative net blocks, WDV assets with nil residual value, and assets whose remaining life exceeds the Schedule II life without disclosure
Every item on that list has one correct answer derivable from the data. A language model that "estimates" any of them is doing the wrong job. The computation should run as arithmetic; the model's role is to assemble the schedule, drive the reconciliations, and surface the exceptions.
Judgement — stays with the auditor:
- Whether the useful life adopted is supportable
- Whether the method matches the consumption pattern
- Whether components have been identified properly
- Whether a change in estimate was genuine or was earnings management
- Whether assets are impaired, which is a different standard entirely
This is why we built CORAA's depreciation work as a computation with checks around it rather than as a prompt. The arithmetic is not the hard part of the audit — but it is the part that consumes the afternoon, and it is the part where a transposed useful life quietly flows into the deferred tax working.
Frequently Asked Questions
What is the formula for the WDV rate under Schedule II?
R = [1 − (s ÷ c)^(1 ÷ n)] × 100, where s is residual value, c is original cost, and n is useful life in years. Residual value is ordinarily not more than 5% of original cost. Schedule II specifies useful lives rather than rates, so the rate must be derived.
Can I depreciate an asset to zero under the WDV method?
Not by applying a constant percentage — a declining balance approaches zero without reaching it. That is why a residual value (ordinarily 5% of cost) is used in the WDV rate formula. A WDV schedule showing nil residual value has an arithmetic inconsistency.
Is changing from SLM to WDV a change in accounting policy?
No. Under AS 10 (Revised) and Ind AS 16 it is a change in accounting estimate, applied prospectively over the remaining useful life, with disclosure of the change and its effect. The older AS 6 treatment requiring retrospective recomputation no longer applies.
Which method gives higher depreciation in the first year?
WDV, substantially. In the worked example above — ₹10,00,000 cost, 10-year life, 5% residual — WDV charges ₹2,58,866 in year 1 against SLM's ₹95,000. WDV falls below SLM later in the life, and both reach the same residual value at the end.
Does Schedule II let a company choose its own useful life?
Yes, but with conditions. A company may adopt a useful life different from the Schedule II indicative life if it is supported by technical advice, and it must disclose the difference and the justification in its financial statements.