Author
LoansJagat Team
Read Time
5 Min
30 May 2025
Nitin is a self-made man who works for our family. He purchased the car in 2015 for ₹10,00,000. It is expected that the current value of the car in 2025 will be ₹2,50,00.
Simple Calculation
Depreciation Table
Year | Value at Start | Yearly Depreciation | Value at End |
2015 | ₹10,00,000 | ₹75,000 | ₹9,25,000 |
2016 | ₹9,25,000 | ₹75,000 | ₹8,50,000 |
…. | …. | …. | …. |
2015 | ₹3,25,000 | ₹75,000 | ₹2,50,000 |
Every year, Nitin’s car costs him ₹75,000. After 10 years, the amount you can get for the stock is ₹2,50,000.
Over time, depreciation happens to something you own as its value lowers due to wear and tear. Things such as cars, phones, or machines lose their value as time passes.
Depreciation Table
Year | Value at Start | Yearly Depreciation | Value at End |
2015 | ₹10,00,000 | ₹75,000 | ₹9,25,000 |
2016 | ₹9,25,000 | ₹75,000 | ₹8,50,000 |
…. | …. | …. | …. |
2015 | ₹3,25,000 | ₹75,000 | ₹2,50,000 |
Key Points
Nitin’s car loses ₹80,000 every year, simple and easy to track!
It is important because businesses and individuals need to know how much their assets may have lost in value over the years. It has an impact on taxes, financial decision-making, and planning.
Example: Nitin’s Car Business:
Read More – Effective Ways to Use a Business Loan for Cash Flow Management
Nitin owns a taxi service and bought a car for ₹10,00,000 in 2015. After 10 years, its value drops to ₹2,00,000.
Depreciation Table: (Straight Line Method)
Year | Value at Start | Yearly Depreciation | Value at End |
2015 | ₹10,00,000 | ₹80,000 | ₹9,20,000 |
2016 | ₹9,20,000 | ₹80,000 | ₹8,40,000 |
…. | …. | …. | …. |
2015 | ₹3,28,000 | ₹80,000 | ₹2,00,000 |
There are several ways to find the rate of depreciation. Depending on the business situation, certain assets require certain accounting methods. Allow me to explain three common options using Nitin’s car as an example.
Nitin's Car Details
1. Straight-Line Method (Equal Yearly Loss)
Calculation:
(₹10,00,000 - ₹2,00,000) ÷ 10 = ₹80,000 per year
Year | Value at Start | Yearly Depreciation | Value at End |
2015 | ₹10,00,000 | ₹80,000 | ₹9,20,000 |
2016 | ₹9,20,000 | ₹80,000 | ₹8,40,000 |
…. | …. | …. | …. |
2015 | ₹3,28,000 | ₹80,000 | ₹2,00,000 |
2. Written Down Value (WDV) Method (Faster Early Loss)
Calculation (20% rate):
Year | Value at Start | Yearly Depreciation | Value at End |
2015 | ₹10,00,000 | ₹2,00,000 | ₹8,00,000 |
2016 | ₹8,00,000 | ₹2,60,000 | ₹6,40,000 |
2017 | ₹6,00,000 | ₹1,28,000 | ₹5,12,000 |
…. | …. | …. | …. |
3. Units of Production Method (Based on Usage)
Example: If a car lasts 2,00,000 km:
(₹10,00,000 - ₹2,00,000) ÷ 2,00,000 = ₹4 per km
If Nitin drives 20,000 km/year:
20,000 × ₹4 = ₹80,000 yearly depreciation
Which Method to Choose?
Nitin can pick the method that best matches his car's use and business needs.
Depreciation helps save taxes by reducing your business profits on paper. Here's how it works for Nitin:
Each year, Nitin pays less tax since the depreciation makes his company’s earnings look less, helping him save money towards a new car. With this benefit, companies can acquire business assets more easily as time goes by.
It is similar to your car getting less valuable over time, though your business. Choose Nitin’s taxi because it was bought for ₹10 lakhs; each year, ₹80,000 is lost in paper value. The pay expenses, not real money taken from his pocket. So far, he’s used ₹4 lakhs from his business income to buy his next car and has set aside that amount, avoiding tax on it.
Also Read – How to Calculate Company Valuation – Step-by-Step Guide
A straight-line method is simple, but WDV gives tax savings at the beginning of the ownership. The main idea is that depreciation gives businesses like Nitin’s the ability to prepare for the next purchase, while saving taxes. The approach helps to manage money effectively as time goes on, channelling loss of assets into better financial results.
1. What is depreciation?
Depreciation is the gradual loss in value of things you own, like cars or machines, because they get older or wear out over time.
2. Why does depreciation matter?
It helps businesses like Nitin’s show lower profits on paper, which means paying less tax. It also helps plan for replacing old assets without financial shocks.
3. How is depreciation calculated?
The simplest way (straight-line method) divides the asset’s cost minus its scrap value by its useful years. Nitin’s ₹10 lakh car with a ₹2 lakh scrap value over 10 years loses ₹80,000 yearly.
4. What’s the difference between straight-line and WDV methods?
Straight-line deducts equal amounts yearly (like Nitin’s ₹80,000), while WDV deducts more in early years (e.g., ₹2 lakh first year, then less each following year).
5. Can depreciation save me taxes?
Yes! By claiming depreciation, Nitin reduces his business’s taxable profit. Lower profit = lower tax, even though no actual cash is spent.
6. Do all assets depreciate?
No, only assets that lose value over time (cars, machines). Land or investments like stocks don’t depreciate.
7. What’s salvage value?
It’s what the asset is worth at the end of its life. Nitin’s car may sell for ₹2 lakh after 10 years, that’s its salvage value.
8. Can I change depreciation methods later?
Usually no. Tax rules require you to stick to one method for each asset unless there’s a special reason to change.
9. How does depreciation affect selling an asset?
If Nitin sells his car for more than its depreciated value, the extra profit is taxable. If sold for less, he can claim a loss.
10. Is depreciation the same as maintenance costs?
No. Depreciation is a paper loss in value, while maintenance (like repairs) is real cash spent to keep the asset working. Both reduce profits but differently.
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LoansJagat Team
We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?
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