The Written-Down Value (WDV) method, also known as the declining balance method, is a depreciation technique where an asset's value decreases more rapidly in the earlier years of its useful life. This approach initially results in higher depreciation expenses, followed by lower charges in subsequent years, reflecting the asset's declining productivity and value over time.
For example, if a company purchases machinery for $100,000 with a five-year useful life, depreciating at 20% annually, the first year's depreciation would be $20,000. In the second year, depreciation would be 20% of the net book value ($80,000), amounting to $16,000. In the third year, Depreciation expense would decrease further to $12,800, and so on. The method reflects the idea that the machinery was more productive and valuable in its early years.
The method commonly applies to assets that depreciate quickly, such as technological equipment or vehicles.
