How to wdv depreciation?
When a new asset is incorporated into the company, its value is reduced once it is ready to use. This reduction in the value of a fixed asset is called depreciation. In more definite terms, depreciation is the decline in the value of a fixed asset due to obsolescence and usage.
If a company acquires a fixed asset, such as a machine, the asset will still lose some of its value over time, even if it is not used, because it becomes outdated. Fixed assets decline in value. In technical terms, this decline is called depreciation. Calculations can determine depreciation. Generally, there are two methods, the straight-line method and the written-down value method. There are many different methods of determining depreciation in a company’s fixed asset. Still, the most widely-used methods are the straight-line method or SLM and the written-down value method or WDV. Both methods use different approaches to determining depreciation.
The written down method determines previously purchased assets’ current worth. Let us understand how this method works by looking at an example of depreciation’s written down value method.
Example: Company ABC acquires a machine that costs them ₹1,00,000. The machine has an expected life of three years. Suppose the depreciation rate for the machine is 10%. We can find the machine’s depreciation by the written-down value method formula.
The cost of the machine: ₹ 1,00,000
Depreciation at the end of the first year:
100000 10100= 10000
The written down value of the asset at the end of the first year:
100000-10000=90000
WDV at the end of the second year:
9000010100= 9000
The written down value at the end of the second year:
90000-900=81000
Depreciation at the end of the third year:
81000 10100= 8100
The written down value at the end of the third year:
81000-8100=72900
Therefore, the written down value of the asset at the end of the three years of usage will be ₹72,900.
The written-down value method has the following advantages.
The written-down value method has the following disadvantages.
SLM, or the straight-line depreciation method, is the earliest and most widely-used method of determining depreciation. This method follows the assumption that an asset is equally used during its life period. If we plot a graph between the amount of depreciation and the period, the graph will result in a straight line because its constant over the period, and that is why it is called the straight-line method.
Depreciation for the year is the rate in percentage multiplied by the WDV at the beginning of the year. For example, for Year I – Depreciation = 10,00,000 x 12.95% i.e. 1,29,500. New WDV for subsequent year will be previous WDV minus Depreciation already charged.
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