Sometimes referred to as the net book value, the written-down value has to do with the current worth of fixed assets that appear on the financial records of a company. The actual amount of written-down value is adjusted from the original cost of the item to more accurately reflect the fair market value of the asset or assets in the current economic climate. As a result, it is not unusual for companies to adjust the written-down value of some assets on at least an annual basis.
Two of the key factors that go into calculating a current written-down value are depreciation and amortization. The process will always begin with the original or initial value of the asset in question. That historical figure will then be adjusted based on the amount of depreciation that is currently allowed under the existing tax structure. In many cases, this means there is a percentage of depreciation that can take place within a given calendar year, based on normal usage of the asset. Amortization of the asset further helps to bring the posted net value of the asset into line with current economic conditions, resulting in a realistic picture of the current worth of the asset.
Companies may allow the concept of written-down value to any number of fixed assets. Production machinery is an excellent example of assets that are eligible for this process. Over time, the machinery will become somewhat less valuable, due to the release of upgraded versions combined with the continuous use of the equipment in the production process. Maintaining a properly calculated written-down value for the machinery helps to make the task of ascertaining the current assets of the company much more accurate. This can be especially helpful when quarterly and annual tax documents are prepared, since the tax breaks can be very helpful to the business.
Knowing the current net book value will also come in handy when applying for business loans. Lenders will want to know the current market value of tangible assets, not what the business paid for the asset three or four years ago. From this perspective, the written-down value can help to ensure the lender that the applicant has sufficient resources to call upon if needed to settle the outstanding balance of the loan.
