How to Pass a Depreciation Entry in TallyPrime (SLM & WDV Methods)
How to Pass a Depreciation Entry in TallyPrime (SLM & WDV Methods)
Learn how to calculate and record depreciation journal entries in TallyPrime using Straight Line Method (SLM) and Written Down Value (WDV) methods.
Who is this for: Step-by-Step Tutorial
In financial accounting, depreciation is the systematic reduction of a fixed asset's recorded cost over its useful economic life. It represents the wear and tear, obsolescence, or deterioration of tangible assets like machinery, vehicles, computers, and office furniture.
Because depreciation is a non-cash transaction (no money changes hands at the time of calculation), it is recorded using the Journal Voucher (F7) in TallyPrime. Setting up depreciation correctly is critical for aligning your books with the matching principle of accounting, reflecting accurate net profits, and remaining compliant with regulatory frameworks like the Companies Act, 2013, and the Income Tax Act, 1961.
Regulatory Frameworks: Companies Act vs. Income Tax Act
In India, businesses must often maintain two separate sets of depreciation calculations due to differences in legislation:
- Companies Act, 2013 (Schedule II): Focuses on the useful life of assets. Depreciation is calculated based on how long the asset is expected to remain productive, using either the Straight Line Method (SLM) or the Written Down Value (WDV) method. This determines the book profits reported to stakeholders.
- Income Tax Act, 1961 (Section 32): Focuses on tax relief. Assets are classified into broad groups known as the Block of Assets (e.g., Computers at 40%, Plant & Machinery at 15%). Depreciation is strictly calculated using the WDV method, which determines tax liability.
Ledger Setup for Depreciation in TallyPrime
Before recording the journal entry, ensure your Chart of Accounts is configured with the correct ledgers. Go to Gateway of Tally > Create > Ledger to set up:
- Depreciation Expense Ledger: Name this Depreciation A/c and group it under Indirect Expenses.
- Asset Ledger(s): Ensure each fixed asset ledger (e.g., Computers A/c, Office Furniture A/c) is grouped under Fixed Assets.
- Accumulated Depreciation Ledger (Optional): If you prefer to keep assets recorded at their historical cost on the Balance Sheet, create an Accumulated Depreciation A/c and group it under Provisions or Suspense Accounts.
Straight Line (SLM) vs. Written Down Value (WDV) Calculations
Let's compare how depreciation is calculated under both methods using an asset with an original cost of Rs. 1,00,000 and a depreciation rate of 15% over three years:
| Year | SLM Calculation (Constant Expense) | SLM Closing Book Value | WDV Calculation (Reducing Expense) | WDV Closing Book Value |
|---|---|---|---|---|
| Year 1 | Rs. 1,00,000 * 15% = Rs. 15,000 | Rs. 85,000 | Rs. 1,00,000 * 15% = Rs. 15,000 | Rs. 85,000 |
| Year 2 | Rs. 1,00,000 * 15% = Rs. 15,000 | Rs. 70,000 | Rs. 85,000 * 15% = Rs. 12,750 | Rs. 72,250 |
| Year 3 | Rs. 1,00,000 * 15% = Rs. 15,000 | Rs. 55,000 | Rs. 72,250 * 15% = Rs. 10,838 | Rs. 61,412 |
Step-by-Step Guide: Posting a Depreciation Entry in TallyPrime
Once you have calculated your depreciation totals, use these steps to post the entry:
1. Open Vouchers
Go to the Gateway of Tally > Vouchers. Click F7 (Journal) in the right-hand panel.
2. Set Closing Date
Press F2 and set the date to the last day of the financial year (e.g., 31-Mar-2026).
3. Debit Depreciation
Under Debit (Dr), select Depreciation A/c. Enter the total depreciation amount (e.g., Rs. 15,000) and press Enter.
4. Credit the Asset Ledger (Direct Method)
Under Credit (Cr), select the specific asset account (e.g., Computers A/c). Tally will automatically fill the credit amount, lowering the asset's net book value.
Alternative (Indirect Method): Credit the Accumulated Depreciation A/c ledger instead.
5. Narration
Type a detailed narration (e.g., "Being depreciation charged on office computers at 40% WDV for FY 2025-26 under Income Tax guidelines") and press Ctrl+A to save.
Handling the 180-Day Rule for Mid-Year Asset Additions
When you purchase an asset in the middle of a financial year, you must verify when the asset was actually put to use. Under the Income Tax Act, if an asset was put to use for:
- 180 Days or More: Charge full depreciation (e.g., 40% on computers).
- Less than 180 Days: Charge half depreciation (e.g., 20% on computers).
For example, if you bought a computer on November 15, 2025, and put it to use immediately, it was active for less than 180 days before the March 31 year-end. If it cost Rs. 50,000, the depreciation entry for that year will be:Rs. 50,000 * 20% (half of 40%) = Rs. 10,000.
Asset Audit and Expense Classification Automation via TrulyInvoice
One of the biggest issues auditing teams encounter during year-end depreciation reviews is misclassification. When a business purchases equipment, office chairs, or software subscriptions, administrative staff often book them as direct/indirect expense items (like "Printing & Stationery" or "Office Repairs") instead of capital asset additions. This understates asset values on the Balance Sheet and deprives the business of tax depreciation claims.
TrulyInvoice completely removes this friction. By utilizing automated document classification:
- TrulyInvoice helps you capture asset acquisitions directly from supplier invoice PDFs.
- It guides the user to map the line item to a Fixed Assets group rather than standard operating expense categories.
- It retains the original supplier bills as digital attachments, allowing your auditor to verify the purchase date (essential for the 180-day rule verification) directly within Tally.
- This ensures that your asset register is always accurate, preventing last-minute journal adjustments and auditing delays.
Chartered Accountant & Accounting Automation Specialist