Usually high voltage (HV) winding is kept open and the low voltage (LV) winding is connected to its normal supply. A wattmeter (W), ammeter (A) and voltmeter (V) are connected to the LV winding as shown in the figure. Now, applied voltage is slowly increased from zero to normal rated value of the LV side with the help of a variac. When the applied voltage reaches to the rated value of the LV winding, readings from all the three instruments are taken.
The ammeter reading gives the no load current I0. As I0 itself is very small, the voltage drops due to this current can be neglected.
The input power is indicated by the wattmeter (W). And as the other side of transformer is open circuited, there is no output power. Hence, this input power only consists of core losses and copper losses. As described above, no-load current is so small that these copper losses can be neglected. Hence, now the input power is almost equal to the core losses. Thus, the wattmeter reading gives the core losses of the transformer.