Depreciation is the systematic allocation of the depreciable amount of a fixed asset over its useful life. It represents the reduction in the value of tangible assets due to wear and tear, obsolescence, passage of time, or exhaustion. Various methods are used in financial accounting to calculate depreciation, depending upon the nature of the asset and the objectives of the business. One of the most common methods is the Fixed Instalment Method, also known as the Straight Line Method (SLM). Under this method, a fixed amount of depreciation is charged every year throughout the useful life of the asset. The annual depreciation is calculated by deducting the residual value from the cost of the asset and dividing the result by the estimated useful life. This method assumes that the asset provides equal utility in each accounting period. Another method is the Diminishing Balance Method, also called the Written Down Value (WDV) method. Under this method, depreciation is calculated at a fixed percentage on the book value of the asset at the beginning of each year. As a result, the amount of depreciation decreases every year because it is charged on a reducing balance. The Annuity Method