The Written Down Value (WDV) method calculates depreciation on an asset’s reducing book value, leading to higher charges in early years and lower ones later.
Learn how it works, its pros and cons, and how it compares to the Straight Line Method in our detailed guide.
Every business invests in assets including machinery, vehicles, equipment, buildings, etc. These assets help them generate revenue over time. However, the value of some of these assets does not remain the same forever. With usage, wear and tear, their economic value gradually declines. As a result, businesses have to deploy various depreciation methods to ensure that their balance sheet reflects true numbers and to comply with the Indian accounting standards.
Several methods can be used to calculate depreciation, with the Written Down Value (WDV) method being one of the most prominent and widely adopted approaches.
Read on to understand the written down value method, how it works, its advantages, disadvantages, and more.
What Is Written Down Value?
Written down value in accounting refers to a depreciation technique in which the net value of an asset is calculated after taking depreciation into account for tangible assets and amortization for intangible assets, at the end of a specific period. It helps the company determine the current value of its inventory assets at any point in time.
Additionally, this method assumes that some assets depreciate more in their early years and less over time, reflecting real-world experience with many fixed assets.
Knowing the definition is one thing. Seeing how the numbers shrink year after year is where the concept truly clicks. Let’s move from theory to calculation.
How does Written Down Value Work?
Also known as the diminishing-value method, the written-down value technique calculates depreciation based on an asset’s current book value rather than its original cost. Here is the formula for calculating the written-down value.
Written Down Value = (Cost of Asset – Salvage Value of the Asset) * Rate of Depreciation in %
To understand how the written down value method works, consider a fixed asset purchased for ₹1,00,000. Assume a depreciation rate of 20% per year and a salvage value of ₹0 for simplicity.
Note: Under the WDV method for tax purposes, salvage value is not subtracted from the cost before applying the rate.
In Year 1, depreciation is calculated on ₹1,00,000
Depreciation = ₹1,00,000 × 20% = ₹20,000
WDV at the end of Year 1 = Opening value – Depreciation
= ₹1,00,000 – ₹20,000 = ₹80,000
In Year 2, depreciation is calculated on the reduced value of ₹80,000.
Depreciation = ₹80,000 × 20% = ₹16,000
WDV at end of Year 2 = ₹80,000 – ₹16,000 = ₹64,000
In Year 3, depreciation is calculated on ₹64,000.
Depreciation = ₹64,000 × 20% = ₹12,800
WDV at end of Year 3 = ₹64,000 – ₹12,800 = ₹51,200
Now that the mechanics of the written down value method are clear, the next logical step is to evaluate whether it is the right choice.
Merits and Demerits of the Written Down Value Method
Written down value depreciation has both advantages and drawbacks that businesses need to consider before choosing it as their method of charging depreciation.
Merits of the Written Down Value Method
- Reflects realistic asset value: Because depreciation is charged on the reducing book value each year, the WDV method closely mirrors the actual decline in an asset’s value over time.
- Higher early-year depreciation: It front-loads depreciation charges, which can better match the economic usefulness and productivity of many assets in early years.
- Tax benefits: Higher depreciation in the initial years can lower taxable profits, providing tax savings for businesses.
- Suitable for rapidly obsolescing assets: Industries with technology or machinery that lose value quickly benefit from using WDV.
While useful in many scenarios, the WDV method has its limitations too.
Demerits of the Written Down Value Method
- Fluctuating depreciation expense: Because depreciation changes every year, it can lead to inconsistent profit and loss comparisons across accounting periods.
- Complexity: It’s more complex to calculate and maintain than simpler methods like the straight line method (SLM).
- Asset value never reaches zero: Under WDV, the book value of the asset theoretically never reaches zero, which can be an accounting drawback compared to SLM.
- Less suitable for long-life assets: Assets that don’t lose much value in early years may have lower depreciation, which can misrepresent actual usage.
With a clear understanding of both the strengths and weaknesses of the WDV method, it becomes easier to compare it with alternative approaches like the straight line method.
Written Down Value Method vs Straight Line Method
Under the Indian accounting and taxation framework (including the Companies Act, 2013, and the Income Tax Act, 1961), both the written down value method and the straight line method are permitted for depreciation.
| Parameter | Written Down Value (WDV) Method | Straight Line Method (SLM) |
| Basis of Calculation | Charged on reducing book value each year | Charged on original cost every year |
| Depreciation Pattern | Decreasing depreciation amount | Fixed depreciation amount |
| Profit Impact | Lower profits in early years, higher later | Uniform impact on profits each year |
| Tax Usage in India | Mandatory for most assets under Income Tax Act | Common for financial reporting under Companies Act |
| Best Suited For | Assets with rapid wear and obsolescence | Assets with consistent utility |
Final Thoughts: When Should Businesses Use the WDV Method?
Businesses typically adopt the written down value method when assets are expected to deliver higher productivity in their early years and to gradually lose efficiency over time. It works best for machinery, vehicles, and technology-driven equipment that face rapid wear, innovation cycles, or obsolescence.
Companies also prefer WDV when seeking higher depreciation charges in the initial years, thereby reducing taxable income under Indian tax provisions. This method is particularly suitable for capital-intensive industries with frequent asset replacement. Overall, WDV aligns well with assets whose economic value declines faster in the beginning than later.
