Table of Content:
- Importance of Written Down Value Method
- Written Down Value: Concept
- Written Down Value Method Formula
- Written Down Value Method of Depreciation Rate
- Calculating Depreciation Under Written Down Value Method
Many of you must have wondered how businesses calculate the depreciation of their assets. From a real estate perspective, the written down value method is an important process used by property owners and investors in order to track and check the depreciation of their property.
Importance of Written Down Value Method
Using the WDV method allows property owners to figure out the current worth of their assets. Moreover, it helps them make better decisions and is also important for financial reporting.
Even property owners can claim tax deductions for the depreciation of their assets, and that's where the written down value method helps them determine the depreciation amount that can be claimed.
Investors in India use the written down value method in order to assess the current value of the property, which helps them determine whether investing in a property will be a good deal or not.
Now that you have gained a better understanding of how the real estate sector uses the WDV method, continue studying below to explore the basic concepts of WDV with formulas and examples.
Written Down Value: Concept
The depreciation wdv method is used in the real estate sector to calculate the depreciation of assets, including (but not limited) to buildings and other structures. Moreover, the written down value criteria are used only for tax-related work and do not necessarily reflect the property's actual market value. Because the actual worth of the property may appreciate or depreciate depending on market conditions, demand, location, and other factors.
Also Read: 5 Common Financial Mistakes in Real Estate Investing
Written Down Value Method Formula
In the written down value depreciation method, the property's depreciated value is calculated. Higher depreciation during the beginning years will result in a reduced tax amount. Below you will find the written down value method formula.
Depreciation= Years of Usage of property/ age of the property
Based on the result, the net value of the property will be:
Current Property Price or Net Book Value = Depreciation X Market Price
Written Down Value Method of Depreciation Rate
First, understand the abbreviated terms:
R stands for Rate of depreciation
S stands for Scrap value at the end of the usage period
C stands for Current written down value.
N stands for the Useful life period of an asset.
Under the written down value, the formula for calculating the depreciation rate is:
R=1-(s/c)1/n
Calculating Depreciation Under Written Down Value Method
Let's assume that the cost of an asset is Rs 5 lakh and consider the depreciation of the asset annually is 10%
Therefore, the written down value of an asset will be = Rs [5 lakh - (10 percent of 5 lakhs)]
= Rs 5 lakh - 50,000
= Rs 4,50,000 lakh
This value will be part of the financial statement for the first year.
For the second year, the written down value will be Rs (4,50,000 - 50,000)
= Rs 4,00,000 lakh
For the third year, the written down value is Rs (4,00,000 lakh - 50,000) = Rs 3,50,000 lakh.
Also Read: Finance-Savvy Tips To Simplify Real Estate Investing