Posted in Finance, Accounting and Economics Terms, Total Reads: 679
Definition: Write Down
The deliberate reduction in the book value of an asset by the holding company is known as write down. This is done when the company or individual realises that the asset is overvalued than its current market value i.e. the book value of the asset is more than what the company or individual can get for it in the market.
Companies normally charge their written down amount to their expenses on their income statements. This helps them in a way to reduce their taxes as the amount that is written down reduces the company’s taxable net income directly and hence, results in tax savings. Keep in mind there is no actual loss or expense and the expense charged as write down is only on paper.
Example: The WDV (Written Down Value) method of depreciation is where writing down of value comes into direct play. Here, the company determines the starting value of an asset for a given year by reducing the asset’s value for the previous year by some amount and then repeating the same for every year throughout the asset’s life. The formula is as follows –