Depreciation applicable for Written Down Value (WDV)
Depreciation applicable for Written Down Value (WDV) method is a common approach used to calculate the depreciation expense for assets. WDV is a method of depreciation that focuses on the declining book value of an asset over its useful life. Under this method, depreciation is calculated based on the asset's net book value at the beginning of each accounting period.
Here's how depreciation is calculated using the WDV method:
Determine the initial cost of the asset: The initial cost includes the purchase price of the asset and any directly attributable costs like transportation and installation.
Determine the estimated useful life: The useful life represents the expected period during which the asset will generate economic benefits. It is an estimate based on factors such as physical wear and tear, technological obsolescence, or legal or contractual limits.
Determine the residual value: The residual value is the estimated value of the asset at the end of its useful life. It represents the expected proceeds from selling or disposing of the asset after its useful life.
Calculate the depreciation rate: The depreciation rate is determined by dividing 1 by the useful life of the asset. For example, if an asset has a useful life of 5 years, the depreciation rate would be 1/5 or 20%.
Calculate the depreciation expense: The depreciation expense for a given accounting period is calculated by multiplying the net book value of the asset at the beginning of the period by the depreciation rate. The net book value is the initial cost of the asset minus the accumulated depreciation.
Repeat the calculation each accounting period: At the end of each accounting period, the accumulated depreciation is added to the depreciation expense for the current period. The net book value is then reduced by the depreciation expense to determine the net book value for the next period.
Using the WDV method, the depreciation expense is higher in the earlier years of an asset's life and decreases over time. This reflects the fact that assets tend to lose their value more rapidly in the early years due to wear and tear or technological advancements.
Land is held on a freehold basis and is not depreciated considering the unlimited economic life. In respect of all other property, plant and equipment, depreciation is recognized in the statement of profit or loss and other comprehensive income on straight line method over the estimated useful lives of property, plant and equipment.
Depreciation is charged on addition of fixed assets for whole year irrespective of date of acquisition in the year and no depreciation is charged in the year of disposal. The depreciation method used reflects the pattern in which the asset's economic benefits are consumed by the entity. The depreciation charge for each period is recognized as an expense unless it is included in the carrying amount of another asset.
The Annual depreciation rate of assets are mentioned in following
Categories of assets Rate of depreciation
Land & land development 0%
Building & others constructions 7.50%
Plant & machinery 7.50%
Vehicles 20%
Furniture & fixture 20%
Sundry assets 20%
Office equipment 20%
Upon retirement of assets, the cost and related accumulated depreciation are eliminated from the accounts and resulting gain or loss is charged or credited to the statement of profit or loss and other comprehensive income.