What Is Written-Down Value?

Written-down value is the value of an asset after accounting for depreciation or amortization. In a nutshell, it represents the current value of a company-owned resource from an accounting standpoint. This value is included on the company’s balance sheet in its financial statements.

Book value or net book value are other terms for written-down value.

How Written-Down Value Works

Several accounting rules are intended to better align revenues and costs with the periods during which they are incurred. Depreciation, or amortization, is one strategy that businesses often use.

Businesses often use depreciation for tangible assets like equipment, while intangible assets like software and patents typically use amortization. Companies may use both approaches to use resources with economic value for extended periods. Businesses may spread the cost of assets across various periods rather than immediately deducting the whole purchase price from net income (NI).

When a business purchases equipment, for instance, it is not required to deduct the purchase cost in the year of purchase. Instead, the machinery’s useful life may be extended over several years until it is sold or disposed of.

Written-down value is the current value of an asset that was previously acquired. It is computed by deducting the item’s initial value from the total amount of depreciation or amortization. The final amount will appear on the business’s balance sheet.

The Amortization Process

Amortization is more complex than depreciation techniques, but it can be used to write down the value of debt or intangible assets. The asset’s book value decreases over a predetermined period on the company’s books.

Different kinds of assets may be amortized using a variety of techniques. Every year, intangible assets like patents are usually written down. Conversely, bonds often use the effective interest technique of amortization.

Amounts due on ongoing loans often have amortization schedules corresponding to the loan’s repayment plan, with interest and principal amounts being paid separately. There are supplementary techniques for amortization, such as ballooning and declining balance.

The written-down value of an amortized asset is crucial since it makes monitoring it more accessible for the business. After its amortization has reached zero, an asset may need to be renewed or removed from the books.

Methods of Depreciation

One technique for calculating written-down values is the depreciation or declining balance method. This accounting method lowers an asset’s value annually by a certain proportion. In accounting, several alternative depreciation methods capitalize on the costs associated with various asset classes.

Straight-line depreciation is one example, which subtracts the same amount per year based on dividing the difference between the asset’s cost and estimated salvage value by the anticipated number of years of usage.

Since it is a part of a corporation’s overall asset value, the depreciated asset’s written-down value has significance. Usually recorded at the time of purchase, depreciated assets are often sold before their depreciation drops to zero.

An asset’s depreciated value has a significant role in influencing the asset’s selling price. The asset’s book value establishes the lowest price at which it will be sold.

Tangible assets usually sell for a price between the most significant fair market value and their book value. In most circumstances, any gain from the sale of an investment will be subject to taxation. A standard method for calculating the taxable income on a sale is to compare the item’s sales revenue against its written-down value.

Conclusion

• The worth of an asset after depreciation or amortization is known as its written-down value.
• Depreciation is employed for tangible assets, whereas amortization is used for intangible assets.
• A previously bought asset’s written-down value indicates its current value.
• The written-down value is determined by deducting accrued amortization or depreciation from the asset’s initial value, which is shown on the balance sheet.
• Written-down value helps track an asset’s worth and determine a sale price.