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What Is Written Down Value Method?: How To Calculate WDV Depreciation?

The Written Down Value (WDV) method is a depreciation technique that applies a constant depreciation rate to the net book value of an asset each year. This results in higher depreciation expenses in early years and lower expenses in later years. The formula takes the cost minus salvage value and multiplies it by the depreciation rate. An example shows calculating the depreciation for machinery over 7 years using a 20% rate. The WDV method is compared to the straight-line method using another example, showing WDV results in front-loading more depreciation. Advantages include determining the asset's depreciated value and recording depreciation for assets that lose value quickly.

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2K views6 pages

What Is Written Down Value Method?: How To Calculate WDV Depreciation?

The Written Down Value (WDV) method is a depreciation technique that applies a constant depreciation rate to the net book value of an asset each year. This results in higher depreciation expenses in early years and lower expenses in later years. The formula takes the cost minus salvage value and multiplies it by the depreciation rate. An example shows calculating the depreciation for machinery over 7 years using a 20% rate. The WDV method is compared to the straight-line method using another example, showing WDV results in front-loading more depreciation. Advantages include determining the asset's depreciated value and recording depreciation for assets that lose value quickly.

Uploaded by

Ujwal_K_Centra_2636
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

What is Written Down Value Method?

Written Down Value method is a depreciation technique that applies a constant rate of

depreciation to the net book value of assets each year thereby recognizing more depreciation

expenses in the early years of the life of the asset and less depreciation in the later years of the

life of the asset. In short, this method accelerates the recognition of depreciation expenses in a

systematic way and helps businesses recognize more depreciation in the early years. It is also

known as Diminishing Balance Method or Declining Balance Method

The formula is as follows:

Written Down Value Method = (Cost of Asset – Salvage Value of the Asset) * Rate of
Depreciation in %

 
How to Calculate WDV Depreciation?
Let’s understand the same with the help of an example.

Whitefield Company purchased a Machinery costing $12000 with a useful life of 7 years

and a residual value of $2000. The rate of Depreciation is 20%.

Solution:

Calculation of written down value (WDV) of depreciation can be done as follows –


Depreciation = ($12,000 – $2,000) * 20%

Depreciation = $2000

Calculation of end of the year can be done as follows –

Value at End of Year = ($12,000 – $2,000) – $2,000

Value at End of Year = $8,000

Depreciation as per the Written down Value Method is calculated as follows:


Similarly, we can do the calculation as shown above for year 2 to 5.

Whitefield depreciated the Machinery using WDV Method and as we can observe the

depreciation expense amount is higher during initial years and kept reducing as the asset gets

older.

Written Down Value Method vs Straight Line Method of


Depreciation
One of the most common and popular types of WDV Method is the Double Declining Balance

Method. This method applies depreciation two times the Straight-Line Rate. The word “Double”

signifies this aspect. The method is suitable for assets that quickly lose their value and as such

requires higher depreciation.


Let’s understand the differences between WDV and Straight-line depreciation with the help of

an example.

Mason Limited purchased a Machinery costing $25000 for a specific project and expected

useful life of 5 years. The Machine is expected to have a residual value of $5000 at the end

of its useful life.

Solution:

Calculation of written down value of depreciation can be done as follows –

Based on the above facts the Straight-Line Rate is as follows:

 Straight Line Rate = (Cost of Machine-Residual Value) / Useful life (in years)

 Straight Line Rate = ($25000-$5000) / 5 = $4000


Straight Line Depreciation Rate can be done as follows –

 Straight Line Depreciation Rate= $4000 / ($25000-$5000) = 20%

 Double Declining Balance Rate= 2 * 20% = 40%

So, the calculation of depreciation can be done as follows –

 Depreciation = 40% * ($25,000 – $10,000) = $6,000

 Accumulated Depreciation = $10,000 + $6,000

 Accumulated Depreciation = $16,000

Depreciation Schedule as per Double Declining Balance is shown below:

Similarly, we can do the calculation as shown above for years 3 and 4.

 
Advantages

 Written down Value Method helps in determining the depreciated value of the asset

which is helpful in determining the price at which the asset should be sold.

 It applies a higher amount of depreciation in the initial years of the useful life of the

asset and is an ideal method to record depreciation of assets which lose their value

quickly. An example of such assets could be any Technological development software by

an IT company. By recognizing accelerated depreciation in the early years the business

can determine its fair market value on the Balance Sheet before the technology becomes

outdated.

 Higher Depreciation during initial years results in reduced taxes or we say deferral of

taxes to later years for the business on account of lower Net Income but increased Cash

profits as Depreciation is a Non-cash expense.

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