Written-down Value (WDV)
Written-down Value (WDV) is the value of an asset recorded in financial statements after deducting accumulated depreciation from the initial cost of the asset. For tax purposes, WDV reflects the reduced value of an asset due to usage, wear and tear, and age, making it a critical concept in both accounting and taxation.
Examples
- Machinery Purchase: A company buys machinery for $100,000. In the first year, the machinery is subject to a writing-down allowance of 25%, which amounts to $25,000. Hence, the WDV at the end of the first year is $75,000. In the second year, the allowance is again 25% of $75,000, equating to $18,750, resulting in a new WDV of $56,250.
- Office Equipment: An office acquires equipment worth $20,000. After the first year’s 25% allowance, the WDV is $15,000. Following another 25% allowance on the second year’s $15,000, the WDV drops to $11,250.
- Vehicle Acquisition: A business purchases a van for $30,000. After applying the 25% allowance, the WDV at the end of the first year is $22,500. The following year, another 25% allowance would be $5,625, leaving a WDV of $16,875.
FAQs
Q: What is the purpose of calculating written-down value (WDV)? A: The purpose of calculating WDV is to ascertain the remaining value of an asset after accounting for depreciation, which is crucial for accurate financial reporting and tax calculations.
Q: How is the writing-down allowance applied? A: The writing-down allowance is typically a fixed percentage of the asset’s value, applied annually. For example, a 25% allowance means 25% of the current asset value is deducted each year to arrive at the new WDV.
Q: Is WDV relevant only to physical assets? A: While primarily used for physical assets, WDV can also apply to intangible assets if they are subject to depreciation or amortization allowances.
Q: Does WDV affect a company’s tax obligations? A: Yes, the WDV impacts a company’s tax liability by determining the deductible amount of depreciation, thereby reducing taxable income.
Q: How does WDV influence financial statements? A: WDV affects the balance sheet by accurately reflecting the asset’s book value and impacts the profit and loss statement through depreciation expense.
Related Terms
- Asset: An item of value owned by a company, intended to generate revenue.
- Capital Allowance: Deductions permitted for specific capital expenses, reducing taxable profits.
- Depreciation: The systematic allocation of an asset’s cost over its useful life.
- Amortization: The process of expensing the cost of intangible assets over their useful life.
- Residual Value: The estimated value of an asset at the end of its useful life.
Online References
- Investopedia Article on Written-Down Value
- HM Revenue & Customs Guide on Capital Allowances
- IRS - Depreciation
- Accounting Coach - Depreciation
- Corporate Finance Institute - Written Down Value (WDV)
Suggested Books for Further Studies
- Principles of Accounting Volume 1: Financial Accounting – Mitchell Franklin, Patty Graybeal, and Dixon Cooper
- Intermediate Accounting – Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- Financial & Managerial Accounting – Carl S. Warren, James M. Reeve, and Jonathan Duchac
- Accounting: Tools for Business Decision Making – Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso
- Accounting Made Simple: Accounting Explained in 100 Pages or Less – Mike Piper
