Depreciation Methods - WDV
Written Down Value or WDV Method is another very popular method of providing depreciation. However to understand this method one must be conversant with funda of WDV. WDV of any asset refers to value of that asset after depreciation has been charged. So:
WDV (as on a particular date) = Cost of Asset Less Depreciation on the asset till that particular date.
So if we wish to calculate WDV of any asset say on 1April 2005, the same will be equal to Cost of Asset Minus Depreciation on the asset till 1April 2005.
WDV method of providing depreciation gets its name from the concept of WDV itself. In this method amount of depreciation on any asset is calculated on WDV of the asset and not on the original cost of asset as in Straight Line Method.
So for each year depreciation is calculated as below:
As a result, depreciation for each year is different from earlier year as the amount on which depreciation is calculated get reduced each year unlike in SLM where the base amount(Original Cost) remains constant.
Following example will clear the concept further
Example 1:
ABC Ltd buys a asset for Rs 100000.00.However ABC Ltd feels that the asset would have a residual value of Rs 10000.00 at the end of its useful life. What will be the annual depreciation charged for this asset if WDV rate of Depreciation is 10%
Solution 1:
As is evident from the example above, depreciation on any asset as per WDV is never same in any year.In fact for one particular asset the same is always reducing. Here one must note this essential difference between SLM and WDV. In SLM depreciation is always same through out the life of asset but the same is reducing in case of WDV method
WDV (as on a particular date) = Cost of Asset Less Depreciation on the asset till that particular date.
So if we wish to calculate WDV of any asset say on 1April 2005, the same will be equal to Cost of Asset Minus Depreciation on the asset till 1April 2005.
WDV method of providing depreciation gets its name from the concept of WDV itself. In this method amount of depreciation on any asset is calculated on WDV of the asset and not on the original cost of asset as in Straight Line Method.
So for each year depreciation is calculated as below:
| Original Cost of the asset | 100000 | |
| Less: Depreciation till Last year | 10000 | |
| WDV | 95000 | |
| Depreciation for current year @ 10% | 9500 |
As a result, depreciation for each year is different from earlier year as the amount on which depreciation is calculated get reduced each year unlike in SLM where the base amount(Original Cost) remains constant.
Following example will clear the concept further
Example 1:
ABC Ltd buys a asset for Rs 100000.00.However ABC Ltd feels that the asset would have a residual value of Rs 10000.00 at the end of its useful life. What will be the annual depreciation charged for this asset if WDV rate of Depreciation is 10%
Solution 1:
| Cost of Asset | 100000 | |
| Cost to be written off in 5 Yrs | 100000 | |
| Depreciation for Yr 1 @ 10% | 10000 | |
| WDV at end of Yr 1/Begening of Yr 2 | 90000 | |
| Depreciation for Yr 2 @ 10% | 9000 | |
| WDV at end of Yr 2/Begening of Yr 3 | 81000 | |
| Depreciation for Yr 3 @ 10% | 8100 | |
| WDV at end of Yr 3/Begening of Yr 4 | 72900 | |
| Depreciation for Yr 4 @ 10% | 7290 | |
| WDV at end of Yr 4/Begening of Yr 5 | 65610 | |
| Depreciation for Yr 5 @ 10% | 6561 | |
| WDV at end of Yr 5/Begening of Yr 6 | 59049 |
As is evident from the example above, depreciation on any asset as per WDV is never same in any year.In fact for one particular asset the same is always reducing. Here one must note this essential difference between SLM and WDV. In SLM depreciation is always same through out the life of asset but the same is reducing in case of WDV method
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