What is Written Down Value Method?
Under this method of charging depreciation, the amount charged as depreciation for any asset is charged at a fixed rate, but on the reducing value of the asset every year. The amount of depreciation is deducted from the written down value (i.e., cost less depreciation) of an asset and charged on the debit side of the Profit and Loss A/c as a loss. The concerned asset is depreciated with an unequal amount every year, as the depreciation is charged to the book value and not to the cost of the asset. It is also called the ‘Diminishing Balance Method’.
Difference between Straight Line and Written Down Value Method of calculating Depreciation
The word “depreciation” comes from the Latin word ‘depretium’ where ‘De’ means decline and ‘pretium’ means price. Thus the word ‘depretium’ stands for the decline in the value of assets. Depreciation refers to the decrease in the value of assets of the company over the time period due to use, wear and tear, and obsolescence. In others words, it is the method to allocate the cost of an asset over its useful life. Depreciation is always charged on the cost price of the asset and not on its market price. It is charged every year to the extent of the depreciable amount. Examples of assets that can be depreciated are Machines, Computers, Furniture, Vehicles, etc.