Distinguish between Revenue Reserve and Capital Reserve

Examples of provisions are:
(i) Provision for depreciation.
(ii) Provision for bad and doubtful debts.
(iii) Provision for taxation.
(iv) Provision for discount on debtors.
Examples of reserves are:
(i) General Reserve
(ii) Workmen Compensation Fund.
(iii) Investment Fluctuation Fund.
(iv) Capital Reserve.

Written down value method is more appropriate because this method is suitable for those assets which are affected by technological changes. Moreover, this method is recognised by income tax hand.

According to matching principle, the incomes of a given period should be matched with the expenses of the same period. Cost of a fixed asset (less salvage values, if any) is spread over the estimated useful life of it, through depreciation accounting in a systematic and rational manner. Fixed assets help in generating revenue and the depreciation is the cost/expense incurred in generating revenue.
Scrap value or residual value is an estimated sale value of the assets, at which it can be sold at the end of its useful or economic life. Suppose useful life of a car is 10 years. After 10 years, the car may be sold for Rs 25,000. The estimated scrap value is reduced from the total cost of assets for the purpose of calculating depreciation.

Under straight line method, same amount is charged as depreciation in profit and loss account which makes comparison of profits for different years easy, with the passage, of time, work efficiency of asset decrease and repair and maintenance expenses increase, the total amount charged against profit on account of depreciation will not be uniform throughout the life of the asset, adversely affect the profit and loss account a balance sheet.
Written down value method results the equal burden on profit and loss account every year. This method is suitable for fixed assets which lasts for long period, no adversely affects then position of Balance sheet.

Straight line method is suitable for assets in which repair charges are less, the possibility of obsolescence is less and scrap value depends upon the time period involved. Written down value method is suitable for assets, which are affected by technological changes and require more repair expenses with the passage of time such as plant and machinery, motor vehicle etc. In this problem, written down value method is suitable for changing depreciation.

The main causes of depreciation are:
(i) Wear and tear
(ii) Efflux of time,
(iii) Obsolescence.
(iv) Accidents.
(v) Fall in market prices