What is Written Down Value (WDV)?

WDV full form is written down value. It refers to the current value of an asset after removing the accumulated depreciation from its original cost. The Written down value method is used in depreciation calculations, especially under the reducing balance method. Here, the depreciation is charged each year on the asset’s remaining book value rather than its original cost. When an investor uses the written-down value, then the businesses can systematically allocate the cost of an asset across its extended warranty. This shows a realistic asset value in financial statements, and it helps in determining the accurate gains and tax calculations. This article explains what is written down value, how it is calculated, its advantages, disadvantages and more.  

Written Down Value Formula 

The Written Down Value (WDV) formula is: 

WDV = Initial Cost – Accumulated Depreciation 

The depreciation under the WDV method is calculated every year on the asset’s opening written down value and not on the original cost. The formula for annual depreciation is: 

Depreciation = Opening WDV × Depreciation Rate 

When the depreciation for the year is calculated, the amount is deducted from the opening WDV to arrive at the closing WDV. This closing value then becomes the opening WDV for the next financial year. As the depreciation is charged on a reducing balance each year, the depreciation amount gradually decreases over time. 

How to Calculate Written Down Value? 

Here’s a step-by-step process on how to calculate the WDV:  

1. Investors need to know the original cost of the asset at the time of purchase. 
2. The applicable depreciation rate needs to be determined as per the accounting policy or tax rules. 
3. The annual depreciation is calculated by multiplying the opening WDV with the given depreciation rate. 
4. To get the closing WDV, investors need to subtract depreciation from the opening WDV. 
5. The process needs to be repeated each year, using the previous year’s closing WDV as the new opening value. 

This method makes sure that depreciation expense is reduced over time while reflecting the declining value of the asset in the financial statements.  

Written Down Value Example 

Here is a simple example to show how the written-down value is calculated each year. Suppose a company named ABC purchases machinery for ₹1,00,000 and applies a depreciation rate of 20% per year under the Written Down Value (WDV) method. 

For Year 1: 

The depreciation would be = ₹1,00,000 × 20% = ₹20,000 
The closing WDV would be= ₹1,00,000 – ₹20,000 = ₹80,000 
 

Year 2: 

The depreciation would be = ₹80,000 × 20% = ₹16,000 
The closing WDV would be = ₹80,000 – ₹16,000 = ₹64,000 
 

Year 3: 

In the third year, the depreciation will be = ₹64,000 × 20% = ₹12,800 
The closing WDV = ₹64,000 – ₹12,800 = ₹51,200 
 

The above example shows how the WDV method is calculated. Above the depreciation is calculated on the reduced value each year, so the depreciation amount will decrease annually. 

After understanding what is WDV along with the example, the article further explains the difference between WDV and SLM.  

WDV vs Straight Line Method (SLM) 

The table below shows the difference between a WDV and the straight line method (SLM) 

Importance of Written Down Value 

The following are the key reasons why written down value is important. 

1. Accurate Asset Valuation: The written down value helps in showing the correct and current book value of an asset after accounting for depreciation is done.  
2. Realistic Depreciation Calculation: The WDV generally charges higher depreciation in the early years when the assets are generally more productive or lose value faster. 
3. Better Profit Measurement: As the depreciation reduces over time, it goes with the expenses, according to the actual usage pattern of many assets. 
4. Tax Planning: The WDV method is mostly accepted under tax regulations. This helps businesses in generating allowable depreciation correctly. 
5. Financial Reporting: It ensures systematic allocation of asset cost over its useful life. This improves the reliability of all the financial statements. 

Advantages & Disadvantages of Written Down Value Method 

The table below show the advantages & disadvantages of written down value method 

Conclusion 

Written down value means the book value of an asset after deducting all the accumulated depreciation from its original cost. This is the foundation of the depreciation calculation under the reducing balance method. WDV is determined by depreciating the starting WDV by a constant rate every year, and this method leads to a depreciation cost that declines over the years.  This method is mainly used for tax purposes, helping calculate allowable depreciation and manage overall tax liability. Investors who are using a stock market trading app should also understand financial concepts to make informed decisions about company performance and long-term investment planning.