Written Down Value (Diminishing Balance) Method

The Written Down Value (WDV) Method — also called the Diminishing Balance Method or the Reducing Balance Method — is the second method on the syllabus, and it takes a fundamentally different approach from the Straight Line Method.

The idea. Instead of a fixed rupee amount, a fixed percentage (rate) is applied every year — but applied to the asset's written down (book) value at the start of that year, not to its original cost. Because the base on which the percentage is applied keeps shrinking, the rupee amount of depreciation is largest in the first year and keeps falling every year after that.

Formula.

Depreciation for a year = Book Value at the start of the year × Rate of Depreciation (%)

Book Value at the end of the year = Book Value at the start of the year − Depreciation for the year

Worked illustration. A firm purchases equipment for ₹40,000 and decides to charge depreciation at 20% per annum by the Written Down Value method.

Notice how the depreciation amount itself falls every year (8,000 → 6,400 → 5,120) even though the rate (20%) stays exactly the same — because it is applied to a smaller and smaller base each time.

A point worth knowing: under WDV, the book value can approach zero but, strictly, never mathematically reaches exactly zero (each year's charge is only a fraction of whatever remains) — in practice, businesses simply write off the small remaining balance in the asset's final year of use, or stop when the balance reaches an agreed nominal or scrap value. …