According to spicer and pegler, "Depreciation is the measure of exhaustion of the effective life-of an asset froin any cause during a given period",

(i) Depletion means exhaustion of natural resources. Examples, are oil wells, mineral deposits and timber etc.
(ii) Under this method, depreciation is calculated per unitof the output by dividing the total acquisition cost of asset by the number of units expected to be produced. This method is similar to preductien unit method.

\( \text { Amount of depreciation per year } =\frac{\text { Original cost of the asset }-\text { Estimated scrap value }}{\text { Estimated useful life of the asset in years }} \)
\(={10,000-2,000\over 10}={8,000\over 10}\) = Rs.800 per year
Rate of depreciation = \({Amount\ of\ depreciation\ per\ year\over Original\ cost}\times100\)
\(={800\over 10,000}\times100=8\%\)

Purchase price of plant = 4000
Erection charges = 2,000
Odginal cost = Ptuchase price + Installation charges
(i.e 40,000) + 2,000 =42000)
Effective life of the plant = 5 years
Estimated scrap value = Nil
\(\text { Amount of Depreciaion }=\frac{\text { Original cost - Estimated scrap value }}{\text { Estimated useful life of the asset in years }}\) 
= \(\frac{42000-0}{5 \text { years }}\) 
= Rs.8,400

(i) Sinking fund method is adopted especially when it is desired not merely to write off an asset but also to provide enough funds to replace an asset at the end of its working life.
(ii) Under this method, the amount charged as depreciation is transferred to depreciation fund and invested outside the business.
(iii) This method of depreciation is suitable for assets of higher value.
(iv) This method is also known as depreciation fund method

\( \text { Amount of depreciation per year } =\frac{\text { Original cost of the asset }-\text { Estimated scrap value }}{\text { Estimated useful life of the asset in years }} \)
= \(\frac{1,00,000-4,000}{8}\)
= 12,000 per year
\( \text { Rate of depreciation per year } =\frac{\text { Amount of depreciation per year }}{\text { Original cost }} \times 100\)
= \(\frac{12,000}{1,00,000}\times100\) = 12%

Note:
Cost of the asset = Purchase price + Installation cost
= 80,000 + 20,000 = Rs. 1,00,000
Ledger accounts

∴ I^st Year depreciation = Rs.10,625
II^st Year depreciation = Rs.42,500
Amount of depreciation on 31.03.2015: Rs. 10,625; on 31.03.2016: Rs. 42,500)

Merits:
Following are the merits of written down value method.
(a) Equal charge against income: 
(i) In theinitial years depreciatiori is high and repair charges are low.
(ii) Hence, the total burden on profit in respect of depreciation and repairs put together remains almost similar year after year.
(b) Logical method :
(i) In the earlier years, when the asset is more productive, high depreciation is charged.
(ii) In the later years when the asset becomes less productive, the depreciation charge is less.
Limitations :
Following are the limitations of written down value method.
(a) Assets cannot be completely written off:
Under this method, the value of an asset even if it becomes obsolete and useless, cannot be reduced to zero and some balance would continue in the asset account.
(b) Ignores the interest factor:
(i) This method does not take into account the loss of interest on the amount invested in the asset.
(ii) The amount 'would have earned interest, had it been invested outside the business is not considered.
(c) Difficulty in determining the rate of depreciation:
(i) Under this method, the rate of providing depreciation cannot be easily determined
(ii) The rate is generally kept higher because it takes very long time to write off an asset down to its scrap value.
(d) Ignores the actual use of the asset:
(i) Under this method, a fixed rate of depreciation is provided on the written down value of the asset by applying the predetermined rate of depreciation on its original cost.
(ii) But, the actual use of the asset is not considered in the computation of depreciation.

(a) Straight Line Method:

(b) Written Down Value Mathod: