Written Down Value (WDV)

Written down value (WDV) is the book value of a fixed asset after deducting accumulated depreciation from its original cost. It represents what the asset is currently worth on the balance sheet, not what you paid for it or what it would sell for today. Tax authorities in many countries use WDV as the basis for calculating depreciation deductions allowed in each fiscal year.

Think of WDV like the odometer-adjusted price of a used car: the sticker price at purchase minus the wear accumulated over the years you have owned it.

How WDV Is Calculated

The formula is straightforward:

Written Down Value = Original Cost - Accumulated Depreciation

If you purchase machinery for $100,000 and apply 20% depreciation in year one, the WDV at the end of year one is $80,000. Apply another 20% of the original cost in year two and the WDV falls to $60,000, and so on under the straight-line method.

Under the reducing balance method, also called the diminishing balance method, you apply the depreciation rate to the WDV rather than the original cost each year. A $100,000 machine depreciated at 20% per year under reducing balance falls to $80,000 after year one, then to $64,000 after year two (20% of $80,000), creating a faster write-down in early years and a slower write-down later.

WDV Under the Reducing Balance Method

Tax systems in the United Kingdom, India, and several other countries use the reducing balance method to calculate WDV for tax purposes. Under this system, you apply a fixed percentage to the asset's WDV each year rather than to the original purchase price. This accelerates deductions in the early years of ownership, which reduces taxable income faster and creates a larger present-value benefit than straight-line depreciation.

The Indian tax code, for example, specifies WDV depreciation rates for each asset class under the Income Tax Act. Plant and machinery typically carries a 15% rate, meaning each year's depreciation deduction equals 15% of the remaining WDV, not 15% of the original purchase price.

WDV vs. Net Book Value vs. Market Value

These three terms sound similar but measure different things. WDV and net book value are essentially the same: both describe the asset's balance sheet value after depreciation. Market value is what you could actually sell the asset for today. The three figures almost never align.

A commercial building carried at a WDV of $500,000 might sell for $2 million on the open market if land values have appreciated. A piece of specialized manufacturing equipment might have a WDV of $200,000 but a scrap value of only $5,000 because the technology is obsolete. WDV is an accounting figure, not an economic one.

Why WDV Matters for Tax and Disposal

When you sell an asset, the difference between the sale proceeds and the WDV determines your taxable gain or loss on the disposal. If you sell the $100,000 machine for $70,000 when its WDV is $60,000, you report a $10,000 gain. If you sell it for $50,000 when the WDV is $60,000, you report a $10,000 loss, which reduces your tax liability.

This disposal calculation makes WDV tracking important for every fixed asset in your business. Letting WDV records fall out of date creates inaccurate tax positions that can surface during audits.

Sources:
https://www.irs.gov/publications/p946
https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual
https://www.incometaxindia.gov.in/