# Written Down Value Method

Under this method, depreciation is charged on the book value of the asset. As the book value keeps on reducing by the annual charge of depreciation, it is also known as reducing balance method. This method involves the application of a pre-determined percentage of the book value of the asset at the beginning of every accounting period, so as to calculate the amount of depreciation. The amount of depreciation reduces year after year.

For example, the original cost of the asset is Rs. 2, 00,000 and depreciation is charged @ 10% p.a. at

**written down value**, then the amount of depreciation will be computed as follows:

- Depreciation I year) = Rs.20, 00,000 x 10

___ = Rs.20, 000

100

**Written down value**

(at the end of the I year) = Rs. 2,00,000 - 20,000 = Rs. 1,80,000- Depreciation (II year) =Rs. 1,80,000 x 10

____ =Rs.18, 000

100 **Written down value**

(at the end of the II year) = Rs. 1,80,000 - Rs. 18,000 = Rs. 1,62,000- Depreciation (III year) =Rs.1, 62,000 x 10

____ = Rs. 16,200

100 **Written down value**

(at the end of the III year) = Rs.1, 62,000-Rs.16, 200 =Rs.1, 45,800

This is due to the reason that a predetermined percentage is applied to a gradually shrinking balance on the asset account every year. Thus, large amount is recovered as depreciation charge in the earlier years than in later years.

**Under written down value method**, the rate of depreciation is computed by using the following formula:

Where, r = Rate of depreciation

n = Expected useful life

s = Scrap value

c = Cost of an asset

For example, the original cost of a truck is Rs. 9, 00,000 and its net salvage value after 16 years of useful life is Rs. 50,000 then the appropriate rate of depreciation will be computed as under: