A business organization purchases assets for its own purpose, The assets may be objective (i.e. products) or abstractive (i.e. services). It uses the purchased assets for several years. After the usual years, the asset value doesn’t remain the same. It decreases with the depreciation rate. This tutorial will provide a proper illustration on how to use the WDV method of depreciation formula in Excel. You will also find the uses of the UDV method with respect to the yearly final price considering the depreciation cost.
Overview of Depreciation & WDV Method
What Is Depreciation?
Depreciation is an indicator of a decrease in the amount of any assets (i.e. products, goods, services) over a certain period of time. Any individual or business organization may purchase any asset such as any electronic device, motor vehicle, apartment, etc. and find out the value of that asset after using it over a certain period of time after inducing depreciation, the monetary value of this asset will be decreased.
What Is WDV (Written Down Value) Method?
WDV method stands for Written Down Value method in terms of calculating depreciation. Two methods are frequently used for depreciation calculation.
- Straight Line Method (SLM)
- Written Down Value (WDV)
Company policy doesn’t impose any rules or obstruction on the application of any method. Usually, Companies use SLM, but the Income-tax Act imposes priority to calculate depreciation by using the WDV method only. However, there are few exceptional cases in that respect.
This method is applied for a constant rate of depreciation to the net value in respect of calculating assets each year. This formula is also named as Diminishing Balance Method or Declining Balance Method.
Written Down Value Method = (Cost of Asset – Salvage Value of the Asset) * Rate of Depreciation (%)
Common Uses of WDV Method of Depreciation Formula in Excel
Here, we have introduced a dataset where the initial cost of a specific asset of a company is considered as $50000. The rate of depreciation is taken as 20% and the residual value is taken as $7000.
Using the WDV formula, we can find out the depreciation and the final price at the end of each useful year. Let’s see the uses of the WDV formula in respect of depreciation.
Calculating Depreciation with WDV Formula
In the dataset, the rate of depreciation is mentioned. So, we can calculate the depreciation cost using the WDV formula.
- Here, select a cell for calculating depreciation and apply the WDV formula.
- C5 = Initial Cost
- C6 = Residual Value
- C7 = Rate of Depreciation
- Then, press ENTER and the cell will calculate the depreciation cost taking into account the formula.
Finding Yearly Final Value with Depreciation
As we have learned how to calculate Depreciation with the WDV formula, using the depreciation we can also find the final value after a specific time period.
- Here, all you have to do for finding the year-end value is to utilize the depreciation. Apply the following formula for that purpose.
- C5 = Initial Cost
- C6 = Residual Value
- C8 = Depreciation
- Then, press ENTER and you will get the final value at the end of the first year.
If your asset has useful years of more than 1, then you can also find the final price after the end of the consecutive years by utilizing the price after the first year. Just multiply the first year end price by the rate of depreciation.
- D5 = Final value after first year
And subtracting the depreciation cost from the first year’s final price, you will get the price after 2nd year.
- D5 = Final Price after 1st year
- C6 = Depreciation of 2nd year
In the same way, you can find the depreciation and year end value for consecutive years utilizing the depreciation and yearly final value of the previous years.
A practice section is attached to the Excel file. The initial cost, depreciation rate, and residual value are provided. Input the WDV formula and practice yourself.
📁 Download Practice Workbook
You can download the practice book from the link below.
In this article, I have tried to give an overview of depreciation and the uses of the WDV method of depreciation formula in Excel for finding the yearly final value for the consecutive useful year of a specific asset of a company. I hope this article has shed some light on your way to this. If you have better methods, questions, or feedback regarding this article, please don’t forget to share them in the comment box.
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