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WDV Full Form & Meaning, SLM Full Form & Meaning

Umesh Kurmi is a semi-qualified Chartered Accountant from the Institute of Chartered Accountants of Nepal. He has seven years of experience.

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What Is WDV?

WDV represents Written-Down Value in its full form. WDV is the worth of a resource after deprecation or amortization has been considered. It demonstrates the current worth of an organization's assets from a bookkeeping viewpoint. This sum is displayed on the balance sheet of the organization's financial statements.

Book value or netbook values are other terms for written-down value.

Why is depreciation calculated?

As a result of wear and tear, the value and utility of an asset or resource may deteriorate over time. Depreciation is calculated to represent such a decline in value. Depreciation is the process of spreading the cost of an asset over its usable life. The Income Tax Act allows depreciation to be calculated for both tangible (such as a building, factory plant, or machinery) and intangible assets (trademarks, patents, franchises).

Calculating depreciation is beneficial because it provides you with a tax benefit. To estimate the genuine value of their profits and losses, businesses must also calculate it. In the absence of such calculations, businesses may have no indicator of real profit and may suffer as a result of incorrect valuations.

How Written-Down Value Works?

Various bookkeeping rules are expected to more readily match incomes and costs to the period in which they happen. One strategy that firms typically use is referred to as depreciation or amortization.

Depreciation is utilized for physical resources like machinery, and amortization is utilized for intangible resources like patents and software. Both methods allow businesses to depreciate economic assets over a longer period.

Written-down value is a way of determining the present worth of a previously purchased item by deducting accrued depreciation or amortization from the asset's original value.

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Amortization Methods

Amortization is a somewhat more elaborate approach to lessening the worth of obligation or intangible resources than depreciation. On the company's books, the asset's book value is decreased according to a set schedule.

Different strategies for amortizing different types of assets can be employed. Annually, intangible assets such as patents are routinely written off. Bonds, on the other hand, are frequently amortized using the effective interest technique.

Meanwhile, payback plans for outstanding loans usually follow the repayment schedule of the loan, with interest and principal repayments separated. Additional amortization methods, such as diminishing balance and ballooning, are also available.

The written-down value of an amortized asset is significant since it aids in the company's accounting. When an asset has been amortized to zero, it can either be written off or renewed.

Depreciation Methods - WDV/SLM

A technique for depreciation known as the declining balance approach can be utilized to ascertain WDV. The value of an asset is diminished by a particular rate every year utilizing this bookkeeping strategy. Different other depreciation methodologies additionally exist in bookkeeping and are utilized to underwrite the costs of various sorts of assets.

Straight-line depreciation, for instance, deducts a similar sum consistently by splitting the difference between the asset's cost and its projected salvage by the number of years it will be utilized.

Depreciated assets are normally recorded at their acquisition price and sold before they reach zero.

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How To Calculate WDV? Video

Difference between SLM and WDV

SLM and WDV are two well-known methods for deciding depreciation (which is the procedure for writing off the worth of an asset during its useful lifetime). SLM is otherwise called the Straight Line Method and in this strategy, depreciation is charged uniformly across each accounting period.

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Here are the distinctions between the two techniques Straight Line Method (SLM) and Written Down Value Method (WDV):

SNWDVSLM

1

A fixed amount of depreciation is charged to the assets

A fixed rate of interest that is charged to the assets

2

The value of depreciation charged is constant

Rate of depreciation charged is constant every year till assets useful life

3

Asset value fully becomes zero

Asset value does not become zero

4

Depreciation is initially lower

Depreciation is relatively higher

5

Easier to understand and calculate depreciation

It is a little more complicated than the straight line method

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Drawbacks of the WDV method

Even though the WDV technique is the most practical and recommended approach for calculating depreciation, it has drawbacks. The first is that the asset's worth cannot be reduced to zero. Second, the asset's original cost slips notice every year. As a result, tracking the asset's original cost becomes extremely difficult when we buy new assets in later years.

This method also necessitates a lot of bookkeeping and determining the proper amount might be challenging. The WDV approach, on the other hand, is the finest for calculating the depreciation of a plant, machinery, or even a car.

Conclusion

The value of a resource after depreciation or amortization is called WDV.

For physical assets, depreciation is employed, but for intangible assets, amortization is used.

The written-down value of a previously purchased asset represents its current worth.

Written down value is derived by deducting accrued depreciation or amortization from the asset's original value on the balance sheet.

WDV is utilized to monitor a resource's worth and decide its selling cost.

FAQs

Why do we use the WDV method?

The Written Down Value Method aids in estimating the asset's depreciated value, which in turn aids in deciding the price at which it should be sold. It uses a higher rate of depreciation in the first few years of the asset's useful life.

What is the other name of the WDV method?

The WDV method is sometimes referred to as the reducing-value method, reducing balance, lowering installment method, or declining balance method.

What is the difference between SLM and WDV?

Depreciation is charged uniformly over each accounting period in the SLM, commonly known as the Straight Line Method.

What are the methods of depreciation?

Straight-line, falling balance, sum-of-the-years' digits, and units of production

What is the depreciation formula?

Depreciation rate (SLM) = (Cost of assets - Salvage Value)/Useful life in years*100

Depreciation = Purchase Price * Depreciation Rate or (Purchase price – Salvage Value)/Useful Life.

Is depreciation an expense?

Yes, depreciation is an expense.

Is depreciation a fixed cost?

Depreciation is a frequently fixed expenditure that is documented as an indirect item. Companies construct a depreciation expense schedule for asset investments that depreciate over time as their value decreases. For example, a corporation may purchase machinery for a manufacturing assembly line that is depreciated over time.

Who can claim depreciation?

The owner of the asset can claim depreciation on assets.

Can individuals claim depreciation?

Individual depreciation is not the same as business depreciation.

Does depreciation include GST?

In your depreciation calculations, you include the amount of GST you paid on the asset, and the instant asset write-off threshold includes GST.

Can salaried employees claim depreciation?

Only when you use an asset in a business or profession can it be depreciated. As a result, a salaried worker is unable to claim depreciation.

Can depreciation always be positive?

Depreciation arises simply because a fixed asset is involved. There was a financial outflow to pay for the fixed asset when it was first purchased. As a result, depreciation's net positive cash flow effect is canceled out by the underlying payment for a fixed asset.

How is depreciation recorded?

Debit Depreciation Expense and credit Accumulated Depreciation Account

Can I depreciate a used car?

Yes, you certainly can. The prime cost approach or the decreasing value method is both used to calculate depreciation. Both techniques, however, include the same elements: the number of days held, the vehicle's cost or base value, and the vehicle's effective life.

Is depreciation a nominal account?

The depreciation cost is a nominal account that will be closed toward the finish of the financial year.

What is a provision for depreciation?

This is an arrangement that was created to separate the worth of depreciation on assets. It is created to move the total measure of depreciation into the asset account when the assets are sold.

Is depreciation an asset or liability?

If you're wondering whether depreciation is a liability or an asset on the balance sheet, the answer is that it's an asset — precisely, a contra asset account, which is a negative asset used to diminish the value of other accounts.

Can you have negative depreciation?

Negative depreciation, then again, represents the contrary process of a resource gaining value over the long run. Depreciation bit by bit lessens the recorded worth of a resource until it becomes worthless toward the finish of its useful life.

Why is depreciation charged?

Depreciation is charged

  • To figure out the most accurate value of profit or loss,
  • To show the asset at its right worth in the balance sheet, and
  • To get ready for its replacement.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Umesh Kurmi

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