Methods of Depreciation – Written Down Value (WDV)
Also called Reducing Balance Method or Diminishing Balance Method.
Concept
Depreciation charged on reducing balance (not original cost).
Like: Interest on reducing loan balance!
Formula
Depreciation = Book Value at start of year × Rate%
Book Value = Cost - Accumulated Depreciation
Example 1: Basic
Machine Cost: ₹1,00,000
Depreciation Rate: 20% p.a. (WDV)
Depreciation Schedule:
| Year | Opening Value | Depreciation (20%) | Closing Value |
|---|---|---|---|
| 1 | 1,00,000 | 20,000 | 80,000 |
| 2 | 80,000 | 16,000 | 64,000 |
| 3 | 64,000 | 12,800 | 51,200 |
| 4 | 51,200 | 10,240 | 40,960 |
| 5 | 40,960 | 8,192 | 32,768 |
Notice: Depreciation decreases every year!
SLM vs WDV Comparison
Same Asset: Cost ₹1,00,000, 5 years
SLM (20% on original cost)
- Year 1-5: ₹20,000 each year
- Total: ₹1,00,000
- Final Value: ₹0
WDV (20% on reducing balance)
- Year 1: ₹20,000
- Year 2: ₹16,000
- Year 3: ₹12,800
- Year 4: ₹10,240
- Year 5: ₹8,192
- Total: ₹67,232
- Final Value: ₹32,768 (Never reaches zero!)
Advantages of WDV
- Matches reality: New assets depreciate faster
- Tax benefit: Higher depreciation in early years
- Balances expenses: High depreciation + Low repairs (early) vs Low depreciation + High repairs (later)
- Accepted by Income Tax
Disadvantages
- Complex calculation
- Asset never fully depreciated (theoretically)
- Difficult to determine rate
When to Use Which?
| Use SLM | Use WDV |
|---|---|
| Buildings | Machinery |
| Furniture | Vehicles |
| Patents | Computers |
| Uniform usage | Varying usage |
Quiz
Test Your Knowledge
Question 1 of 4
1. In WDV, depreciation is charged on:
💡 Final Wisdom: "WDV = Like a new car losing value fast initially, then slowly. Realistic depreciation!"