Written-Down Value
Candlefocus EditorWritten-down value, also commonly known as ‘book value’ or ‘carrying value’, is the value of an asset that has been adjusted for depreciation or amortization over its useful life. Depreciation and amortization are accounting processes that are used to spread the cost of an asset over its useful life. Written-down value is an important concept for businesses and individuals, as it can help companies and individuals better manage their asset portfolio, ensuring they do not overpay for an asset or sell it too cheaply.
Depreciation is usually applied to physical assets such as plant and machinery, vehicles and fittings to reflect their declining value over time. Amortization is typically used for intangible assets such as copyrights, patents and trademarks. Written-down value is used in each of the above cases to ensure proper accounting of the decline in value of owned assets over time.
This concept is important to businesses, as it appears in the balance sheet, and is used to assess the asset’s actual cost and its market value. Companies use written-down value to help allocate income more accurately, as well as to help assess the liquidation value of an asset should it need to be sold.
The written-down value is calculated by subtracting the accumulated depreciation or amortization from the initial purchase cost of the asset. It is important to note that the written-down value of an asset is not an exact figure and could differ significantly from the current market value.
Written-down value is also important when computing the depreciation charge of an asset. Companies typically use the written-down value of an asset to calculate the annual depreciation charges for each reporting period. In addition, some companies’ accounting systems use the written-down value of an asset as the residual value, i.e. the value of the asset at the end of its useful life.
Written-down value is an important financial accounting concept and is used in numerous other disciplines such as Corporate Finance, Investment Analysis, Asset Management and Valuation. It is an essential component of managing an asset portfolio, as it provides an indication of the present value or unamortized cost of an asset. By monitoring the written-down value, businesses and individuals can ensure that their assets are properly valued and allocated in a logical and cost-effective way. Accurate knowledge of the asset’s written-down value helps to reduce the risk of asset impairment and enables accurate asset value to be reported in the balance sheet.