Depreciation Calculator

What Is Depreciation?

Depreciation is the systematic allocation of an asset's cost over its useful life. It reflects the consumption of economic benefit — as equipment ages, wears out, or becomes obsolete, its value declines. Depreciation is a non-cash expense that reduces taxable income and appears on the income statement.

The straight-line method spreads the depreciable amount (cost minus salvage value) evenly across all years. The declining-balance method applies a fixed percentage to the remaining book value each year, producing higher depreciation in early years — useful for assets that lose value quickly, like technology equipment.

Other methods include sum-of-years'-digits (accelerated) and units-of-production (activity-based). Tax authorities in most countries specify which methods are permissible for tax reporting, while companies may use a different method for financial reporting under GAAP or IFRS.

Formula: Straight-Line: Annual Dep. = (Cost − Salvage) / Useful Life Declining Balance (fixed rate): Rate = 1 − (Salvage / Cost)^(1 / Useful Life) Annual Dep. = Book Value × Rate (Double-declining uses Rate = 2 / Useful Life instead)

Example Calculation

Machine cost = $50,000, salvage = $5,000, useful life = 5 years. Straight-line: (50,000 − 5,000)/5 = $9,000/year. Declining balance at the fixed rate that lands on salvage: rate = 1 − (5,000/50,000)^(1/5) = 36.9%. Year 1 = 50,000 × 36.9% = $18,452 (BV = $31,548), Year 2 = 31,548 × 36.9% = $11,643 (BV = $19,905). Double-declining (40%) would take $20,000 in year 1 but does not reach salvage on its own.

When to Use This Calculator

• An accountant calculating annual depreciation expense for financial statements or tax filings
• A facilities manager projecting the book value schedule for capital equipment over its useful life
• A business owner deciding between straight-line and accelerated depreciation for tax optimization
• An asset manager planning capital replacement budgets based on when assets reach their salvage value

Common Mistakes to Avoid

• Setting salvage value to zero when the asset has real residual value — this over-depreciates the asset and distorts financial statements; estimate resale, scrap, or trade-in value realistically
• Choosing a depreciation method for tax purposes that differs from what the tax authority allows — IRS requires MACRS for US tax depreciation, not straight-line; always check jurisdiction-specific rules
• Depreciating land — land is not a depreciable asset because it does not wear out; only buildings, equipment, and other tangible assets with finite useful lives are depreciated
• Using unrealistic useful life estimates — too short inflates expenses and understates asset value; too long understates expenses; use manufacturer guidelines and industry norms

How to Interpret Results

• The depreciation schedule shows how book value declines over time — declining-balance front-loads the expense, which is beneficial for tax deferral
• When book value equals salvage value, the asset is fully depreciated — no further depreciation can be taken, even if the asset is still in use
• Total depreciation across all years must equal the depreciable base (cost minus salvage) regardless of the method used — the method only changes the timing

Related Standards & References

• IAS 16 (IFRS) — Property, Plant and Equipment depreciation requirements for international financial reporting
• ASC 360 (US GAAP) — Accounting for depreciation, impairment, and disposal of long-lived assets
• IRS Publication 946 — MACRS depreciation tables and rules for US tax purposes

Frequently Asked Questions

Which depreciation method should I use?

Straight-line is simplest and best for assets that provide uniform benefit over time (buildings, furniture). Declining-balance suits assets that lose value rapidly in early years (computers, vehicles, technology). For tax purposes, consult your jurisdiction's rules — many countries mandate specific methods or MACRS schedules.

What is salvage (residual) value?

Salvage value is the estimated amount an asset will be worth at the end of its useful life. It could be scrap value, trade-in value, or resale value. The depreciable base is the asset cost minus salvage value. If salvage value is zero, the entire cost is depreciated over the useful life.