Advantages of Written Down Value Method

Written Down Value Method — Why It Is Used

The Written Down Value (WDV) method is not just a different way to calculate depreciation — it rests on a fundamentally different view of how an asset behaves over its life. The straight line method assumes the asset gives equal service every year. WDV assumes the opposite: the asset's usefulness declines as it ages, and so should the depreciation charge.

This section lists five distinct advantages that make WDV the preferred method in many real-world situations.

1. Realistic allocation of cost

The method is based on the idea that an asset's benefits diminish over time. A new machine produces more, breaks down less, and contributes more to revenue than the same machine ten years later. WDV matches this pattern: it charges higher depreciation in the early years when the asset's utility is highest, and lower depreciation later when the asset is less effective. This is a more faithful matching of cost with the benefit actually received each year.

2. Equalises the total annual burden on profit

Repair and maintenance expenses are low when an asset is new and rise sharply as it ages. Under WDV, depreciation is high in early years and low in later years. These two trends move in opposite directions. The result is that depreciation + repairs together remain roughly equal year after year. This makes the profit and loss account more stable and predictable — a practical advantage for planning and comparison.

3. Accepted by the Income Tax Act

The Income Tax Act of India accepts the WDV method for computing depreciation for tax purposes. This is a major practical reason for its widespread use. Businesses that use WDV for their books can also use it for tax, avoiding the need to maintain two separate depreciation schedules.

4. Reduces loss from obsolescence

Obsolescence — when an asset becomes outdated before it is physically worn out — is a real risk. Because WDV writes off a large portion of the asset's cost in the early years, the book value falls quickly. If the asset has to be scrapped early due to obsolescence, the loss (the difference between book value and scrap value) is smaller than it would be under the straight line method.

5. Suitable for long-lived assets and high-obsolescence assets

This method works well for two kinds of assets:

• Assets that last a long time and require increasing repair and maintenance costs as they age (e.g., plant and machinery, vehicles). …