"In case of a long term asset, repair and maintenance expenses are expected to rise in later years than in earlier year". Which method is suitable for charging depreciation if the management does not want to increase burden on profits and loss account on account of depreciation and repair.
Written Down Value Method is the suitable method for charging depreciation in this case.
Under the Straight Line Method, the annual depreciation charge remains fixed throughout the useful life of the asset. Since repair and maintenance expenses increase in later years, the total charge against the Profit and Loss Account (depreciation plus repair expenses) rises significantly in later years, thereby increasing the burden on profits.
On the other hand, under the Written Down Value Method, the depreciation charge declines in later years as it is calculated on the written down value (reducing balance) of the asset. This declining depreciation amount offsets the increasing repair and maintenance expenses. Consequently, the total of depreciation and repair charges remains similar or equal year after year, ensuring that the burden on the Profit and Loss Account does not increase over time.
Explanation
The textbook context in section 7.7.3 explicitly explains this concept. It states that repair and maintenance expenses increase in later years of an asset's useful life. Under the Straight Line Method, since depreciation remains constant, the total charge (depreciation + repairs) increases over time. However, under the Written Down Value Method, depreciation declines in later years, which balances out the rising repair costs, keeping the total charge relatively stable. This makes WDV method suitable when management wants to avoid increasing burden on the Profit and Loss Account.
Solution Steps
Step 1: Identify that repair and maintenance expenses rise in later years of asset life.
Step 2: Understand that under Straight Line Method, depreciation is fixed, so total charge (depreciation + repairs) increases over time.
Step 3: Recognize that under Written Down Value Method, depreciation declines in later years.
Step 4: Conclude that WDV method keeps total charge similar year after year by balancing declining depreciation with rising repairs.