Written down value

Written down value (WDV) refers to the value of an asset after accounting for depreciation or amortization. It represents the current book value of the asset on the balance sheet.
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Updated: May 28, 2024

3 key takeaways

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  • Written down value is the asset’s value after accounting for depreciation or amortization.
  • It reflects the current book value of an asset as reported on the balance sheet.
  • WDV is used for financial reporting, tax purposes, and asset management.

What is written down value?

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Written down value (WDV) is the reduced value of an asset after deducting accumulated depreciation or amortization from its original cost. This method is commonly used in accounting to reflect the declining value of fixed assets over time due to wear and tear, usage, or obsolescence. The WDV provides a realistic estimate of an asset’s current worth as opposed to its original purchase price.

For tangible assets like machinery, buildings, and vehicles, WDV accounts for depreciation. For intangible assets such as patents and copyrights, WDV considers amortization.

How is written down value calculated?

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The written down value is calculated by subtracting the accumulated depreciation or amortization from the asset’s original cost. The formula is:

Written Down Value = Original Cost − (Accumulated Depreciation / Amortization)

Example

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Suppose a company purchases machinery for $100,000 and applies straight-line depreciation over ten years. The annual depreciation expense would be:

$100,000 / 10=$10,000

After three years, the accumulated depreciation would be:

3×$10,000=$30,000

The written down value of the machinery after three years would be:

$100,000 − $30,000 = $70,000

Importance of written down value

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The written down value is essential for several reasons:

  • Accurate financial reporting: WDV provides a more accurate representation of an asset’s current value, which is crucial for financial statements.
  • Tax calculation: WDV is used in tax calculations to determine depreciation deductions and assess taxable income accurately.
  • Asset management: Companies use WDV to monitor the condition and value of their assets, helping in decision-making regarding maintenance, replacement, or disposal.

Methods of depreciation affecting WDV

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Various methods of depreciation can affect the calculation of written down value:

  • Straight-line depreciation: Depreciates the asset evenly over its useful life. This method results in a constant annual depreciation expense.
  • Declining balance method: Depreciates the asset at a fixed percentage each year, resulting in higher depreciation expenses in the earlier years and lower expenses in the later years.
  • Units of production method: Depreciates the asset based on its usage or output, leading to variable annual depreciation expenses.

Each method impacts the WDV differently, affecting the asset’s book value over time.

Applications of written down value

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WDV is used in various financial and operational aspects of a business:

  • Balance sheet presentation: WDV is reported on the balance sheet to show the current value of fixed and intangible assets.
  • Tax deductions: Companies use WDV to calculate allowable depreciation deductions for tax purposes.
  • Asset disposal: When selling or disposing of an asset, the WDV helps determine any gain or loss on the transaction.
  • Investment decisions: Businesses use WDV to assess the viability of replacing or upgrading assets based on their current value.

Understanding written down value is crucial for accurate financial reporting, effective tax planning, and informed asset management. For further exploration, related topics include depreciation methods, amortization, fixed asset management, and financial accounting principles. These subjects provide deeper insights into how WDV impacts financial statements and business decisions.



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Arti
AI Financial Assistant
Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000... read more.