Write-Down is an accounting adjustment that reduces the recorded value of an asset when its market value falls below its book value and the decline is considered partial or temporary.
A write-down is used when an asset has lost value, but not completely. Companies apply write-downs to reflect a more accurate and realistic value of assets in their financial statements. This commonly happens due to market downturns, damage, obsolescence, reduced demand, or changes in business conditions.
Write-downs can apply to inventory, fixed assets, investments, or receivables. The reduced amount is recorded as an expense in the profit and loss statement, which lowers reported profits for that period.
Unlike a write-off (where the asset is considered worthless), a write-down means the asset still has value and may recover in the future. If the asset’s value later improves, some accounting standards allow a write-back (reversal) of the write-down.
"<p>A company has inventory recorded at ₹5,00,000. Due to reduced demand, its market value falls to ₹3,50,000. The company records a <strong >write-down of ₹1,50,000</strong> to reflect the lower value.</p>"