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Fundamentals of Accounting · Depreciation and Amortization

Written Down Value Method of Depreciation Explained

Updated 11 October 2026 · Fact-checked

The written down value method charges depreciation at a fixed percentage on the book value left at the start of each year. Book value is cost minus depreciation so far, so the charge falls every year. For a part year, multiply by months held ÷ 12. Show rate, base and workings.

Understand Written Down Value Method of Depreciation

Depreciation spreads the cost of an asset over its useful life. AS 10 defines it as the systematic allocation of the depreciable amount of an asset over its useful life. There are several ways to do this allocation.

In the written down value (WDV) method, also called the diminishing balance method, you apply a fixed percentage to the book value at the start of the year. Book value is the original cost less depreciation charged so far. Each year the base is smaller, so the charge is smaller. The standard says this method results in a decreasing charge over the useful life.

Compare this with the straight-line method. There, the same amount is charged every year, because the percentage is applied to the original cost. In WDV, the percentage stays the same but the base shrinks.

Why use WDV? AS 10 says the method used should reflect the pattern in which the future economic benefits of the asset are expected to be consumed. If an asset gives more benefit in early years, such as a machine that is most productive when new, a falling charge fits better. The method is applied consistently from period to period unless the expected pattern changes.

The method must be reviewed at least at each financial year-end. If the expected pattern of consumption has changed significantly, the method is changed, and this is treated as a change in an accounting estimate under AS 5. Note one feature of WDV: the asset's book value never reaches exactly zero by this arithmetic. Questions usually ignore this and just ask for a few years.

Key rules to remember

Depreciation for a full year
Depreciation = Opening book value × Rate % ÷ 100
Opening book value, not original cost, is the base from the second year onwards.
Book value at year-end
Closing book value = Opening book value − Depreciation
This closing figure becomes next year's opening figure.
Part-year depreciation
Depreciation = Book value × Rate % ÷ 100 × Months used ÷ 12
Used in the year of purchase (or sale) when the asset is held for only some months.
Book value after n years (full years)
Book value = Cost × (1 − Rate)ⁿ
Rate is written as a decimal, e.g. 20% = 0.20. Handy for checking your answer.
Cost of the asset
Cost = Purchase price + Freight + Installation and other costs needed to bring it to use
Inauguration, advertising, staff training and general overheads are not part of the cost (AS 10, para 20).

How to solve Written Down Value Method of Depreciation questions

Use this order for any WDV question. Draw a small table with columns for year, opening value, depreciation and closing value.

  1. 1Find the cost of the asset. Add purchase price, carriage, installation and similar costs needed to make it ready for use. Leave out inauguration, advertising, training and general overheads.
  2. 2Note the rate (percentage), the date of purchase and the year-end date.
  3. 3For the first year, find the months of use. If the asset was bought on the first day of the year, use 12 months. Otherwise count from the purchase month to the year-end.
  4. 4Compute first-year depreciation = Cost × Rate × Months ÷ 12.
  5. 5Subtract it from cost to get the closing book value. This is the opening value of the next year.
  6. 6For each later full year, apply the rate to the opening book value and subtract again.
  7. 7If an asset is sold or added mid-year, charge depreciation only for the months held, on that asset's book value.
  8. 8Write the final answer with the depreciation of each year and the closing book value, and state the rate used.

Quickest way: Year-by-year table with a multiplier check

When to use it: Use when the question asks for depreciation or book value over two to five years at a given rate.

  1. Write the rate as a decimal, such as 0.20 for 20%.
  2. Each year, multiply the opening value by the rate to get depreciation. Subtract to get the closing value.
  3. After the last year, check: Cost × (1 − rate)ⁿ should equal your closing value. This works only when every year is a full year.
  4. If the first year is a part year, apply the months fraction to that year only and then continue normally.

Common mistakes in Written Down Value Method of Depreciation

  • Applying the rate to the original cost every year.

    Students mix up WDV with the straight-line method, where the base never changes.

    Fix: From year two, always use the previous closing book value as the base. Depreciation should fall each year.

  • Forgetting the months fraction in the year of purchase.

    The question gives an annual rate, and students apply it as is.

    Fix: Check the purchase date first. If the asset was held for 9 months, multiply by 9 ÷ 12.

  • Applying the months fraction again in later years.

    Students carry the part-year factor through the whole table.

    Fix: Use the months fraction only in the year of purchase or sale. Later full years use the full rate.

  • Including inauguration or training costs in the asset cost.

    These costs are related to the asset, so they seem part of it.

    Fix: AS 10 (para 20) says costs of opening a new facility, such as inauguration, and costs of staff training are not costs of the asset. Charge them as expenses.

  • Subtracting depreciation from the wrong figure, giving the wrong closing value.

    Rushed arithmetic with large numbers in rupees.

    Fix: Write each step on its own line and use the multiplier check, Cost × (1 − rate)ⁿ, when all years are full.

  • Changing the method between years without a reason.

    Students switch to straight line to make the numbers easier.

    Fix: Stick to the method named in the question. AS 10 says the chosen method is applied consistently unless the expected pattern of consumption changes.

Worked examples

Example 1

A machine was bought on 1 April 2023 for ₹5,00,000. The firm charges depreciation at 20% per annum on the written down value method. The financial year ends on 31 March. Calculate the depreciation for each of the first three years and the book value at the end of the third year.

Show the solution
  1. Cost = ₹5,00,000. Rate = 20%. The asset was bought on the first day of the year, so each year is a full year.
  2. Year ending 31 March 2024: Depreciation = 5,00,000 × 20% = ₹1,00,000. Closing book value = 5,00,000 − 1,00,000 = ₹4,00,000.
  3. Year ending 31 March 2025: Depreciation = 4,00,000 × 20% = ₹80,000. Closing book value = 4,00,000 − 80,000 = ₹3,20,000.
  4. Year ending 31 March 2026: Depreciation = 3,20,000 × 20% = ₹64,000. Closing book value = 3,20,000 − 64,000 = ₹2,56,000.
  5. Check: 5,00,000 × 0.8 × 0.8 × 0.8 = 5,00,000 × 0.512 = ₹2,56,000. This matches.

Answer: Depreciation is ₹1,00,000, ₹80,000 and ₹64,000 for the three years. Book value at 31 March 2026 is ₹2,56,000.

Example 2

Sharma Traders bought a machine on 1 July 2024 for ₹4,00,000 and spent ₹50,000 on its installation. It also spent ₹20,000 on an inauguration function. Depreciation is charged at 10% per annum on the written down value method. The year ends on 31 March. Calculate the depreciation for the years ending 31 March 2025 and 31 March 2026, and the book value on 31 March 2026.

Show the solution
  1. Cost of the machine = 4,00,000 + 50,000 (installation) = ₹4,50,000. The inauguration cost of ₹20,000 is not a cost of the asset (AS 10, para 20), so it is charged as an expense.
  2. Year ending 31 March 2025: the machine was used from 1 July 2024 to 31 March 2025 = 9 months.
  3. Depreciation = 4,50,000 × 10% × 9 ÷ 12 = 45,000 × 3 ÷ 4 = ₹33,750.
  4. Book value at 31 March 2025 = 4,50,000 − 33,750 = ₹4,16,250.
  5. Year ending 31 March 2026 is a full year. Depreciation = 4,16,250 × 10% = ₹41,625.
  6. Book value at 31 March 2026 = 4,16,250 − 41,625 = ₹3,74,625.

Answer: Depreciation is ₹33,750 for the year ending 31 March 2025 and ₹41,625 for the year ending 31 March 2026. Book value on 31 March 2026 is ₹3,74,625.

Exam tips

  • Read the purchase date before touching the numbers. A date other than the first day of the year means a part-year first charge.
  • Always draw the year-wise table. Even if you make an arithmetic slip, the method marks are given for clear workings.
  • Write the cost build-up in the first line. Examiners often hide non-capital items such as inauguration or training costs in the question.
  • If the question does not name the method, check the wording: 'reducing balance', 'diminishing balance' and 'written down value' all mean the same method.
  • For comparison questions, show the straight-line figure and the WDV figure side by side for the same asset and note that WDV charges more in early years.

Practice questions from Depreciation and Amortization

Written Down Value Method of Depreciation in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Written Down Value Method of Depreciation: frequently asked questions

What is the difference between the straight-line and written down value methods?

In straight-line, the same amount is charged every year because the rate is applied to original cost. In WDV, the rate is applied to the opening book value, so the charge falls each year. Both methods allocate the depreciable amount over the useful life, but the pattern differs.

How do I calculate WDV depreciation for part of the year?

Find the number of months the asset was used in that year. Multiply the book value by the rate and then by months ÷ 12. For example, 9 months at 10% on ₹4,50,000 gives ₹33,750.

Which method should a business choose, straight-line or WDV?

AS 10 says the enterprise selects the method that most closely reflects the expected pattern of consumption of the asset's future economic benefits. It should apply that method consistently. The method is reviewed at least at each financial year-end.

Can depreciation be based on the revenue earned from the asset?

No. AS 10 says a method based on revenue generated by an activity that includes the use of an asset is not appropriate. Revenue is affected by factors like prices and sales volumes, which do not show how the asset is consumed.