Depreciation Calculator
Calculate asset depreciation using three methods: straight line, declining balance, and sum of years digits
Asset Depreciation Details
The original purchase price of the asset
Expected salvage value at end of useful life
Expected number of years of service
Which year to calculate book value for
Enter asset details to calculate depreciation using all three methods
Example: Computer Equipment Depreciation
Asset Details
Original Cost: $10,000
Residual Value: $1,000
Useful Life: 5 years
Calculate for: Year 3
Straight Line
Annual: $1,800
Year 3 Book Value: $4,600
Formula: ($10,000 - $1,000) ÷ 5
Declining Balance
Rate: 36.9%
Year 3 Book Value: $2,511
Higher early depreciation
Sum of Years
Year 3 Fraction: 3/15
Year 3 Annual: $1,800
Accelerated method
Method Comparison
Straight Line
Equal annual expenses
Simplest method
Declining Balance
Higher early depreciation
More realistic for many assets
Sum of Years
Accelerated depreciation
Tax advantage early years
When to Use Each Method
Straight Line: Assets with consistent utility over time
Declining Balance: Technology and equipment that loses value quickly
Sum of Years: Vehicles and machinery with heavy early use
Tax Planning: Accelerated methods provide early tax benefits
Understanding Asset Depreciation
What is Depreciation?
Depreciation is the accounting method of allocating the cost of a tangible asset over its useful life. It represents the reduction in value of an asset over time due to wear and tear, technological obsolescence, or market factors.
Why Calculate Depreciation?
- •Financial reporting compliance
- •Tax deduction planning
- •Asset replacement budgeting
- •Investment analysis accuracy
Key Terms
Original Cost
The initial purchase price including all costs to put the asset into service
Residual Value
Estimated value at the end of useful life (salvage value)
Useful Life
Expected period over which the asset will be productive
Book Value
Original cost minus accumulated depreciation
Straight Line Method
Formula: (Cost - Residual) ÷ Life
Best for: Buildings, furniture, equipment with consistent use
Advantage: Simple and predictable
Disadvantage: May not reflect actual value decline
Declining Balance Method
Formula: Book Value × Rate
Best for: Technology, vehicles, equipment
Advantage: Matches actual depreciation patterns
Disadvantage: More complex calculations
Sum of Years Method
Formula: Base × (Remaining Years ÷ Sum)
Best for: Assets with high early productivity
Advantage: Accelerated depreciation benefits
Disadvantage: Limited tax system acceptance