Depreciation Calculator
Calculate straight-line and declining balance depreciation of assets.
What Is the Depreciation Calculator?
The Depreciation Calculator computes how much value an asset loses each year. Two methods are supported: Straight-Line (equal depreciation each year) and Double Declining Balance (accelerated depreciation, higher in early years). Both methods bring the asset from its original cost to its salvage value over its useful life.
Formula
How to Use
Enter the asset's original cost, its salvage (residual) value at end of life, useful life in years, and select the depreciation method. Click Calculate to see the annual depreciation expense and the year-by-year book value table.
Example Calculation
Equipment cost: $20,000 Salvage value: $2,000 Useful life: 5 years Straight-Line: Annual depr. = (20000−2000)/5 = $3,600/year Year 1 book value: $16,400 Double Declining Balance: Rate = 2/5 = 40% Year 1 depr. = $20,000 × 40% = $8,000 → Book: $12,000 Year 2 depr. = $12,000 × 40% = $4,800 → Book: $7,200
Understanding Depreciation
Depreciation is a fundamental concept in accounting and financial analysis. It allows businesses to spread the cost of a long-term asset over the years it generates revenue, matching expenses to the periods that benefit from the asset.
The choice of depreciation method affects a company's reported income. Straight-line gives steady income; accelerated methods (DDB) reduce income in early years (useful for deferring taxes) but increase it in later years.
Land is the only major asset that is never depreciated, because it does not wear out. Buildings, equipment, vehicles, computers, and intellectual property (through amortization) are all subject to depreciation.
Frequently Asked Questions
What is depreciation?
Depreciation is the systematic allocation of an asset's cost over its useful life. It reflects the asset's loss in value due to wear, age, and obsolescence, and is a non-cash expense for accounting purposes.
When is straight-line depreciation preferred?
Straight-line is simpler and most common for assets that wear evenly (furniture, buildings). It gives consistent annual expenses, making budgeting predictable.
When is double declining balance preferred?
DDB (accelerated depreciation) is preferred for assets that lose value quickly in early years (vehicles, computers, electronics). It also provides larger tax deductions earlier, which has a positive cash flow benefit.
What is salvage value?
Salvage value (also called residual value or scrap value) is the estimated value of the asset at the end of its useful life. It is the floor below which the asset is not depreciated.
Is depreciation used in taxes?
Yes. Tax codes allow businesses to deduct depreciation as a business expense. Tax depreciation methods (like MACRS in the US) may differ from financial accounting methods.
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