Depreciation in JAIIB AFM 2026: SLM vs WDV Methods Explained (Free Notes +

Buy a brand-new phone for 30,000. Use it for six months, and try selling it. Suddenly it is worth only 20,000.

That silent loss of 10,000 is depreciation in real life. Understanding depreciation in JAIIB AFM works on exactly the same logic. And it is one of the easiest scoring areas in Chapter 6 of Accounting.

Financial Management for Bankers.

If you are preparing for JAIIB 2026. This single concept can fetch you direct marks in both theory. Numerical questions. The catch is simple: most aspirants confuse the two main methods. Lose marks they should never lose.

This guide fixes that. We break down what depreciation means. Why businesses charge it.

The causes. The factors. And the two exam-favourite methods.

The Straight Line Method (SLM) and the Written Down Value (WDV) method. With solved examples, a comparison table, common mistakes and a quick FAQ.

What Is Depreciation in Accounting?

Depreciation is the gradual. Systematic allocation of the cost of a fixed asset over the years it is used. Machines.

Vehicles. Furniture and equipment all wear out. Become outdated, or simply lose value with time.

Instead of treating the full cost as an expense in one year. Accounting spreads it out. Each year a portion of the asset's cost is recorded as an expense. This keeps the books fair and realistic.

In short. Depreciation = reduction in the value of a fixed asset over time due to usage. The passage of time, and market trends. It is recorded year after year in a structured way.

Why Depreciation Is a Non-Cash Expense

Here is the part students love. When you charge depreciation, no actual money leaves the business. You already paid for the asset earlier. Depreciation only records the using-up of that value on paper.

So it reduces your reported profit. Which in turn can reduce tax, but your bank balance stays untouched. That is why it is called a non-cash expense. And examiners love testing this exact line.

Why Do Businesses Charge Depreciation?

Charging depreciation is not optional book-keeping decoration. It serves four solid purposes that frequently appear as theory questions in JAIIB AFM.

• Matching principle: It matches the cost of an asset with the income it helps generate across years.
• True. Fair value: It shows a realistic value of assets in the balance sheet instead of an inflated original cost.
• Replacement planning: It builds an internal cushion so the business is ready to replace the asset when it wears out.
• Correct profit: It prevents overstating profit. Which protects the business from distributing money it has not truly earned.

Remember one classic exception: land is not depreciated. It does not wear out and generally appreciates over time.

Causes of Depreciation

Why does an asset lose value at all? The exam expects you to list the causes clearly. Keep these handy as a one-line revision set.

• Wear and tear: Regular use physically reduces an asset's efficiency.
• Passage of time: Some assets lose value simply as time passes. Even when unused.
• Obsolescence: New technology makes old assets outdated. Like CRT monitors replaced by flat screens.
• Accidents: Sudden damage permanently reduces value.
• Fall in market value: Market demand can drop. Pulling the asset's worth down.

Factors Affecting the Amount of Depreciation

Before you can calculate depreciation, you need three core inputs. Get these right and every numerical becomes easy.

1. Historical cost: The total purchase price including installation. Freight and duties, not just the sticker price.
2. Residual or salvage value: The estimated scrap value the asset will fetch at the end of its life.
3. Useful life: The number of years the asset is expected to be productively used.

Legal. Accounting rules also influence the rate. Method a company is allowed to use. When in doubt about prescribed rates. Confirm on the latest official IIBF notification rather than assuming.

Methods of Depreciation: The Overview

There are several methods. But two dominate the JAIIB AFM syllabus and your exam paper. The rest are good to recognise but rarely tested in depth.

• Straight Line Method (SLM) - the most popular and the simplest.
• Written Down Value (WDV) Method - also called the reducing or diminishing balance method.
• Double Declining Balance Method.
• Sum of Years' Digits Method.

Let us master the two that matter most. One at a time, with full solved examples.

Straight Line Method (SLM) Explained

The Straight Line Method spreads depreciation equally across every year of the asset's life. The same amount is charged each year. Which makes it predictable and beginner-friendly.

The SLM Formula

Use this clean formula for every SLM question:

Annual Depreciation = (Cost of Asset − Scrap Value) ÷ Useful Life

SLM Solved Example

Suppose a machine is purchased with the following details:

• Machine cost: 1,00,000
• Scrap value: 10,000
• Useful life: 10 years

Annual depreciation = (1,00,000 − 10,000) ÷ 10 = 9,000 every year.

So the asset loses a fixed 9,000 each year until its book value reaches the 10,000 scrap value.

Calculating Book Value Under SLM

To find the value of the asset after a few years. Just multiply and subtract.

• Depreciation till the 4th year = 9,000 × 4 = 36,000
• Book value after 5 years = 1,00,000 − (9,000 × 5) = 55,000

For a partial year, take a proportion of the annual figure. If an asset is used for 7 months, charge 7/12 of the annual depreciation. This pro-rata trick is a common exam twist.

Advanced SLM Case Study

Now a slightly tougher numerical that mirrors a real exam case study.

• Asset cost plus all related costs = 4,00,000
• Scrap value = 50,000
• Depreciable amount = 4,00,000 − 50,000 = 3,50,000
• Assume useful life = 10 years, so annual depreciation = 35,000

Total depreciation after 4 years = 35,000 × 4 = 1,40,000. The book value at that point becomes 4,00,000 − 1,40,000 = 2,60,000. Simple, once the depreciable amount is fixed.

Written Down Value (WDV) Method Explained

The Written Down Value Method charges depreciation as a fixed percentage on the reducing book value. Because the base shrinks each year, the depreciation amount falls every year.

WDV Solved Example

Take an asset worth 1,00,000 with a depreciation rate of 10%.

• Year 1: 10% of 1,00,000 = 10,000 (book value becomes 90,000)
• Year 2: 10% of 90,000 = 9,000 (book value becomes 81,000)
• Year 3: 10% of 81,000 = 8,100 (book value becomes 72,900)

Notice how the depreciation shrinks from 10,000 to 9,000 to 8,100. This declining pattern is the signature of the WDV method.

The Fast WDV Calculation Hack

Want to skip the year-by-year grind? Use the multiplier shortcut. If the rate is 20%, the asset retains 80% (0.8) of its value each year.

Remaining Value = Asset Cost ×. (1 − rate) raised to the number of years

For an asset of 2,00,000 at 20% for 3 years: 2,00,000 × 0.8 × 0.8 × 0.8 = 1,02,400. To find total accumulated depreciation. Simply subtract this from the original cost: 2,00,000 − 1,02,400 = 97,600.

Accumulated Depreciation in WDV

To get the total depreciation at any point. Add up the annual figures, or use the shortcut above. Both routes give the same answer. So pick whichever is faster under exam pressure.

SLM vs WDV: The Comparison Table

This is the single most important table for your revision. Examiners love direct comparison questions, so memorise these differences cold.

How to Study Depreciation for JAIIB AFM

Concept clarity is good, but marks come from practice. Here is a focused study plan to lock in this chapter.

1. Learn both formulas by heart - the SLM formula. The WDV multiplier shortcut.
2. Solve at least 15 numericals mixing full-year and pro-rata (partial-year) cases.
3. Practise the comparison table until you can reproduce it from memory.
4. Attempt timed mock tests so you can calculate fast under pressure.
5. Revise theory points like causes. Factors and the non-cash nature one day before the exam.

For more chapter-wise breakdowns, explore our free guides covering the entire AFM syllabus.

Common Mistakes Students Make

Avoid these traps. You will save easy marks that many aspirants throw away.

• Forgetting to subtract scrap value before applying the SLM formula.
• Applying SLM logic to a WDV question by charging on original cost instead of book value.
• Ignoring the pro-rata rule for assets bought or sold mid-year.
• Depreciating land, which is normally not depreciated.
• Treating depreciation as a cash outflow in cash-flow based questions.

Frequently Asked Questions (FAQ)

What is depreciation in simple words?

Depreciation is the gradual fall in the value of a fixed asset over time due to use. Age and obsolescence. In accounting. This loss is recorded as an expense each year so the books stay realistic.

What is the main difference between SLM and WDV?

SLM charges the same fixed amount every year on the original cost. WDV charges a fixed percentage on the reducing book value. So the amount falls each year. SLM is simpler; WDV front-loads more depreciation in the early years.

Why is depreciation called a non-cash expense?

Because charging depreciation does not move any actual money out of the business. The asset was paid for earlier. Depreciation only records the using-up of that value. Reducing profit on paper without reducing cash.

Is land depreciated in accounting?

No. Land is generally not depreciated. It does not wear out and usually appreciates over time. Buildings on the land are depreciated, but the land itself is not.

Which depreciation method is asked more in JAIIB AFM?

Both SLM. WDV are important and can appear as theory or numerical questions. Master both. Along with the comparison table. And confirm any specific prescribed rates on the latest official IIBF notification.

Conclusion: Turn Depreciation Into Easy Marks

Depreciation looks intimidating only until you see the pattern. Once you know that SLM is fixed and WDV reduces. The entire chapter falls into place. The formulas are short. The logic is intuitive, and the questions are predictable.

Treat this as a guaranteed-marks chapter. Practise a handful of numericals daily. Keep the comparison table at your fingertips.

And walk into your JAIIB 2026 exam confident. You have got this. And your bank promotion is one solved sum closer.

Related Guides

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

For more on “depreciation in JAIIB AFM”, explore our free mock tests and chapter notes on iibf.store.

Bookmark this page — we keep our “depreciation in JAIIB AFM” guidance current as IIBF revises its rules.

Still researching “depreciation in JAIIB AFM”? Always confirm the latest position on the official IIBF site first.

Practise exam-style questions on “depreciation in JAIIB AFM” free on iibf.store to lock in the concept.

Save this “depreciation in JAIIB AFM” guide and revisit it during your revision week.

Our free notes cover “depreciation in JAIIB AFM” alongside the wider syllabus in one place on iibf.store.