Question
A company purchases machinery for ₹50 lakhs with a
useful life of 10 years and salvage value of ₹5 lakhs. The company uses straight-line depreciation. Due to a change in accounting policy, it now switches to the Written Down Value (WDV) method mid-way, citing better matching of revenue with expenses. What is the impact on financial statements?Solution
WDV method results in higher depreciation in initial years compared to SLM, which reduces profits early on but provides tax benefits through deferred tax savings.
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