Depreciation Methods for JAIIB AFM: SLM vs WDV with Numericals

JAIIB 28 June 2026 · 9 min read · 2 views

Depreciation methods JAIIB AFM — this guide gives you the latest 2026 information. Key dates, eligibility, fees and study tips for the JAIIB exam.

Depreciation is one of the most tested topics in JAIIB AFM. And for good reason. Every bank needs to account for the wear.

Tear of its fixed assets (buildings. Furniture, IT systems, vehicles). Understanding depreciation methods is not just an exam skill.

It's a core banking practice that directly affects a bank's balance sheet. Profit and loss statement, and ratio analysis.

In this guide. We'll walk you through the two main depreciation methods you'll encounter in your AFM syllabus: Straight Line Method (SLM). Written Down Value (WDV) method.

You'll learn when to use each. How to record the journal entries. Solve real numericals, and prepare with confidence for your exam.

What Is Depreciation and Why It Matters for Bankers

Depreciation is the systematic reduction in the value of a fixed asset over its useful life. For example, a bank builds a branch office for ₹50 lakhs. That building doesn't retain its ₹50-lakh value forever.

It deteriorates due to age. Weather, and use. Depreciation lets you allocate that cost across the years the asset benefits you.

Why does this matter for your JAIIB exam and banking career? Because:

Balance sheet accuracy: Fixed assets are listed on the balance sheet net of accumulated depreciation. Banks need to report accurate asset values to regulators and stakeholders.
Profit and loss impact: Depreciation is an expense. It reduces taxable profits and cash tax liability — crucial for financial planning.
Ratio analysis: When you calculate Return on Assets (ROA) or asset turnover ratios (as discussed in our Reading Bank Financial Statements: Ratio Analysis for Bankers guide), depreciation affects the asset base.
Bank lending decisions: Bankers use asset values in credit appraisal. If a customer's assets are not depreciated properly. The security valuation goes wrong.

The Institute of Banking Personnel Selection (IIBF) expects you to know two methods cold: SLM. WDV. Let's break them down.

Straight Line Method (SLM) — Constant Depreciation

The Straight Line Method is the simplest. Most commonly taught depreciation method. It assumes the asset loses value uniformly each year. You calculate annual depreciation using this formula:

Annual Depreciation = (Cost of Asset − Salvage Value) ÷ Useful Life in Years

Let's walk through an example. Suppose a bank purchases a server for ₹4,00,000. It has an estimated salvage value of ₹40,000. A useful life of 5 years.

Depreciable amount: ₹4,00,000 − ₹40,000 = ₹3,60,000
Annual depreciation: ₹3,60,000 ÷ 5 = ₹72,000 per year

Each year, you record the same depreciation charge. The journal entry would be:

Depreciation Expense A/c Dr. ₹72,000To Accumulated Depreciation A/c ₹72,000(Being depreciation for the year)

After 5 years, accumulated depreciation = ₹72,000 × 5 = ₹3,60,000. The net book value becomes ₹40,000 (the salvage value). SLM is preferred when an asset's usage is steady. Like a bank's branch building that operates consistently year on year.

The strength of SLM is its clarity and ease of audit. The weakness: it doesn't account for higher depreciation in early years when assets lose value faster. This is where WDV comes in.

Written Down Value Method (WDV) — Accelerated Early Depreciation

The Written Down Value method (also called Diminishing Balance Method) applies a fixed depreciation rate to the asset's net book value each year. Not its original cost. This means depreciation is higher in early years and decreases over time. Mirroring how assets actually lose value.

The formula is:

Annual Depreciation = Net Book Value at Beginning of Year × Depreciation Rate (%)

Let's use the same server example: cost ₹4,00,000, useful life 5 years. Under WDV, if we use a 40% depreciation rate:

Year 1: ₹4,00,000 × 40% = ₹1,60,000 depreciation. NBV = ₹2,40,000
Year 2: ₹2,40,000 × 40% = ₹96,000 depreciation. NBV = ₹1,44,000
Year 3: ₹1,44,000 × 40% = ₹57,600 depreciation. NBV = ₹86,400
Year 4: ₹86,400 × 40% = ₹34,560 depreciation. NBV = ₹51,840
Year 5: ₹51,840 × 40% = ₹20,736 depreciation. NBV = ₹31,104

Notice how Year 1's charge (₹1,60,000) is much higher than Year 5's (₹20,736). The journal entry is the same structure as SLM. But the amount changes each year.

WDV is preferred for assets that lose value quickly early on. Like IT equipment. Motor vehicles, or machinery.

The RBI also encourages banks to use WDV for tax purposes on qualifying assets. For your JAIIB exam. Be ready to compare both methods and explain when each applies.

Understanding this nuance separates strong exam performers from average ones.

Depreciation Methods Numericals and Exam-Ready Solutions

Let's solve a typical JAIIB AFM numerical that combines both concepts. This type of question is common in the exam.

Question: A bank purchases office furniture worth ₹5,00,000 on 1 January 2024. Salvage value is ₹50,000. Useful life is 4 years.

Compute depreciation for Year 1 under both SLM. WDV (use 30% rate for WDV). Also.

Show the balance sheet presentation for both methods at the end of Year 1.

Solution:

Under SLM:Annual Depreciation = (₹5,00,000 − ₹50,000) ÷ 4 = ₹1,12,500Accumulated Depreciation at Year 1 end = ₹1,12,500NBV = ₹5,00,000 − ₹1,12,500 = ₹3,87,500

Under WDV:Year 1 Depreciation = ₹5,00,000 × 30% = ₹1,50,000Accumulated Depreciation at Year 1 end = ₹1,50,000NBV = ₹5,00,000 − ₹1,50,000 = ₹3,50,000

Balance Sheet Presentation (as at 31 December 2024):

Fixed Assets (SLM): Office Furniture ₹5,00,000; Less: Accumulated Depreciation ₹1,12,500; NBV ₹3,87,500
Fixed Assets (WDV): Office Furniture ₹5,00,000; Less: Accumulated Depreciation ₹1,50,000; NBV ₹3,50,000

Key observation: WDV shows lower NBV and higher depreciation expense in Year 1. This is the expected pattern. For a comprehensive understanding of how depreciation feeds into complete financial statements, check our guide on Financial Statements for Bankers: Balance Sheet & P&L – JAIIB AFM. The depreciation line flows directly into P&L expense and affects net profit, which then influences your ratio analysis.

Depreciation in Bank Accounting: Practical Entries and Reporting

Now let's see how depreciation methods show up in actual bank accounting. Banks record depreciation in their general ledger using a contra-asset account called Accumulated Depreciation (or Provision for Depreciation in older terminology).

Standard Journal Entry:Depreciation Expense A/c Dr.To Accumulated Depreciation. Fixed Assets A/c(Being depreciation charged for the year)

When a bank prepares its Balance Sheet, fixed assets appear as:

Gross Block (original cost) minus
Less: Accumulated Depreciation = Net Block

The P&L statement shows Depreciation Expense as part of operating expenses. Reducing profit before tax. RBI guidelines require banks to disclose fixed assets with their depreciation schedule in the notes to financial statements. This transparency is essential for regulatory compliance and stakeholder confidence.

One critical point for JAIIB exam takers: disposal of fixed assets. When a bank sells a depreciated asset. The gain or loss is the difference between sale price.

Net book value. For example. If the server we depreciated for ₹72,000/year is sold for ₹1,50,000 in Year 3 (NBV at that point = ₹4,00,000 − ₹2,16,000 = ₹1,84,000).

The loss on disposal = ₹1,84,000 − ₹1,50,000 = ₹34,000. This flows to the P&L and affects your profit metrics.

Want to deepen your understanding of how depreciation affects overall asset performance and bank profitability? Try the Branch Profitability — Chapter Test to see how depreciation interacts with revenue and cost management. You'll also benefit from reviewing our Ratio Analysis for JAIIB AFM: Liquidity, Solvency & Profitability Explained guide, which shows how net asset values (post-depreciation) feed into Return on Assets and other critical ratios.

TYPES OF BILLS OF EXCHANGE TDS Mod D Questions #1 STANDAD COSTING QUES #5 Marginal Costing Part 2 Ques #9 Marginal Costing Part 1 Ques #8 GST Mod D Questions #2

PDF Study Notes & Cheat Sheets

29D Afm Taxation Income Tax Tds Deferred Tax 21C Afm Calculation Of Interests And Annuities 20C Afm Ratio Analysis 34D Afm Marginal Costing 32D Afm Costing Methods 31D Afm An Overview Of Cost And Management Accounting

Practice Tests & Mock Exams

Recovery of Retail Loans – Repayment, Hardships, Recovery Process, NPA Recovery — Chapter Test Branch Profitability — Chapter Test Valuation of Real Property — Chapter Test Retail Banking: Role within the Bank Operations — Chapter Test Mortgage Advice — Chapter Test Housing Finance and Tax Planning — Chapter Test

Frequently Asked Questions

What's the difference between SLM and WDV depreciation?

SLM (Straight Line Method) charges the same depreciation amount every year. WDV (Written Down Value) charges depreciation on the declining net book value, so charges are higher in early years and decrease over time. SLM is simpler and used for steady-usage assets; WDV is preferred for assets that lose value quickly upfront, like IT equipment.

Which depreciation method do banks prefer for tax purposes?

The RBI generally encourages banks to use the WDV method for tax depreciation on qualifying assets, as it provides higher deductions in early years and matches the actual value loss pattern. However, for financial reporting (Balance Sheet), banks may use either method consistently, as disclosed in accounting policies.

How does depreciation affect the bank's profit and cash flow?

Depreciation is a non-cash expense. It reduces profit on the P&L but doesn't reduce cash in the bank account. For cash flow analysis, you add depreciation back to net profit to calculate operating cash flow. Understanding this distinction is critical for ratio analysis and financial statement interpretation in your JAIIB exam.

Can a bank change its depreciation method midway?

According to Indian Accounting Standards (Ind-AS) and banking regulations, a change in depreciation method is allowed but must be accounted for as a change in accounting estimate. The bank must disclose this change clearly in the notes to financial statements. Frequent changes are discouraged by auditors and regulators.

Final Word

Depreciation methods are a cornerstone of JAIIB AFM — they touch balance sheets. P&L statements, ratio analysis, and real banking decisions every single day. By mastering SLM and WDV.

Understanding their numericals. And seeing how they flow through financial statements. You're building a rock-solid foundation for both your exam.

Your banking career.

The best way to lock in this knowledge is to practise. Start by solving more numericals, then move to mock tests that integrate depreciation with other AFM topics like ratio analysis and financial statement interpretation. We recommend taking the Branch Profitability — Chapter Test to see depreciation in action within a bank's overall financial health context.

You've got this. Keep revising. Stay focused, and your JAIIB exam success is well within reach.

For more on depreciation methods JAIIB AFM. See the official IIBF circulars. Our chapter-wise free notes on iibf.store.

Source: Indian Institute of Banking & Finance — iibf.org.in

Depreciation Methods for JAIIB AFM: SLM vs WDV with Numericals