What is the 'Written-Down Value'
Written-down value is the value of an asset after accounting for depreciation or amortization, and it is also called book value or net book value. It is calculated by subtracting accumulated depreciation or amortization from the asset's original value, and it reflects the asset's present worth from an accounting perspective. An asset's written-down value will appear on the company's balance sheet.
BREAKING DOWN 'Written-Down Value'Written-down value can be calculated by a method of depreciation that is sometimes called the diminishing balance method. This accounting technique reduces the value of an asset by a set percentage each year. Different depreciation techniques also exist in accounting and are used to capitalize the expenses of different types of asset.
Amortization methods are used for various types of assets and are slightly more complicated than depreciation methods. Amortization methods can be used to write down the value of debt or intangible assets. In all cases the asset is written down on the company’s books according to a set schedule which usually involves annual write-downs. Various methods can be used for amortizing different types of assets. Intangible assets, such as patents, are typically amortized annually. Bonds often use an effective interest method of amortization.
Amortization schedules for outstanding loans typically follow the repayment schedule of the loan with differentiation for interest and principal. Some additional amortization methods are also available including diminishing balance and ballooning. The written-down value of an amortized asset is important because it helps the company track its assets overall. When an asset is amortized to zero, it can be taken off the books or may need to be renewed.
The written-down value of a depreciated asset is important because it is included in the comprehensive value of a company’s total assets. Depreciated assets typically start on the books at their purchased price and are often sold before they are depreciated to zero. The depreciated value of an asset is also important in helping to determine the selling price of the asset. When selling the asset, the book value is used to help determine the minimum value for which it will be sold. Real assets typically sell for a price range within their book value and the highest fair market value. The taxable gain on a sale is often determined by comparing the sales from the item to its written-down value. If a taxable gain is incurred from the sale of an asset, it will be taxable in most cases.