What is Written-Down Value?
Written-down value is the current assessed value of an asset after depreciation or amortization has been accounted for. Simply put, it represents the present worth of a company’s asset from an accounting standpoint, and it is displayed on the company’s balance sheet within its financial statements.
Written-down value is also known as book value or net book value.
Key Takeaways
- Written-down value is the value of an asset after depreciation or amortization.
- Depreciation applies to physical assets, while amortization is for intangible assets.
- The present worth of previously acquired assets is indicated through their written-down value.
- Appears on the balance sheet and is calculated by subtracting total depreciation or amortization from the original cost.
- Helps in monitoring asset value and setting its price at the time of sale.
Understanding Written-Down Value
Accounting techniques are established to align sales and expenses accurately with their respective periods. Depreciation and amortization are two such common practices.
Depreciation deals with physical assets like machinery, whereas amortization is used for intangible assets like patents and software. Both techniques spread the resource cost over several periods instead of taking the full amount directly against net income.
For instance, if machinery is purchased, its cost isn’t expensed in one fiscal year. Instead, the cost is distributed across its useful life. Thus, its value is diminished over time till it’s disposed of or fully utilized.
Written-down value allows companies to determine the current worth of such assets by deducting accumulated depreciation or amortization from the initial value, thereby reflecting on the balance sheet.
Amortization Methods
Amortization not only applies to intangible assets but can also impact the value of debts. The book value of these items is systematically reduced according to a predetermined schedule.
Different amortization methods are applicable, depending on asset types. Typical examples include annual write-down for patents and effective interest method for bonds.
Amortization scheduling for loans follows their repayment plans, distinguishing principal and interest. Additional amortization methods such as diminishing balance or ballooning may also be applied.
Knowing the written-down value of amortized assets is crucial for tracking and managing intangible resources. When an asset reaches zero value, decisions must be made about retaining or replacing it.
Depreciation Methods
One way to calculate the written-down value through depreciation is the diminishing balance method, which reduces an asset’s worth by a constant percentage annually. Various depreciation techniques exist for different asset capitalization.
Straight line depreciation is an example where the annual deduction is equal, based on the difference between the asset’s cost and its salvageable value divided over its usage years.
The written-down value from depreciation is integrated into the company’s total asset value. Depreciated assets often get recorded at purchase price and might be sold before fully depreciating.
The depreciated value helps in pricing the assets during sale, using book value as a benchmark for setting minimum acceptable prices. Usually, real assets sell within a range between their book value and highest fair market value. Any gain from the sale generally becomes taxable, assessed by comparing the sale price to the written-down value.
Related Terms: Book Value, Depreciation, Amortization, Balance Sheet, Physical Assets, Intangible Assets.
