Depreciation Calculator
The following calculator is for depreciation calculation in accounting. It takes the straight line, declining balance, or sum of the year's digits method. If you are using the double declining balance method, just select declining balance and set the depreciation factor to be 2. It can also calculate partial-year depreciation with any accounting year date setting.
Result
| Year | Beginning Value | Depreciation | Accumulated Depreciation | Book Value |
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Depreciation
Conceptually, depreciation is the reduction in the value of an asset over time due to elements such as wear and tear. For instance, a widget-making machine is said to "depreciate" when it produces fewer widgets one year compared to the year before it, or a car is said to "depreciate" in value after a fender bender or the discovery of a faulty transmission.
For accounting, in particular, depreciation concerns allocating the cost of an asset over a period of time, usually its useful life. When a company purchases an asset, such as a piece of equipment, such large purchases can skew the income statement confusingly. Instead of appearing as a sharp jump in the accounting books, this can be smoothed by expensing the asset over its useful life. Within a business in the U.S., depreciation expenses are tax-deductible.
Methods of Depreciation
There are many methods of distributing depreciation amount over its useful life. The following are some of the widely used methods. The total amount of depreciation for any asset will be identical in the end no matter which method of depreciation is chosen; only the timing of depreciation will be altered.
Straight-Line Depreciation Method
Straight-line depreciation is the most widely used and simplest method. It is a method of distributing the cost evenly across the useful life of the asset. The formula is:
Declining Balance Method
The declining balance method is an accelerated depreciation method that applies a percentage to the book value of the asset each year. Higher depreciation occurs in earlier years:
Sum-of-Years Digits Method
This accelerated method uses fractions that decrease each year. The numerator is the remaining useful life, and the denominator is the sum of all years:
Frequently Asked Questions
Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life. It represents the decline in an asset's value due to wear, tear, obsolescence, or the passage of time.
Key purposes:
- Match asset costs with periods benefiting from them (matching principle)
- Reduce taxable income through deductible depreciation expenses
- Provide accurate asset values on balance sheets
- Smooth large asset purchases across multiple accounting periods
Straight-line depreciation is the simplest and most commonly used method. It divides the depreciable base (asset cost minus salvage value) evenly across the useful life.
Example: Asset costing $11,000 with $1,000 salvage value over 5 years:
Advantages: Simple to calculate and understand, consistent expense each year
Declining balance is an accelerated depreciation method that applies a constant percentage to the book value each year. This results in higher depreciation in early years and lower amounts in later years.
Double Declining Balance (DDB): Uses twice the straight-line rate
Year 1: $11,000 × 0.40 = $4,400
Year 2: $6,600 × 0.40 = $2,640
(Depreciation decreases each year)
Sum-of-years digits (SYD) is an accelerated method using fractions that decrease each year. The numerator is the remaining useful life, and the denominator is the sum of all year digits.
Annual Depreciation = Depreciable Base × (Remaining Life / SYD)
Example: 5-year asset; SYD = 5+4+3+2+1 = 15
Year 2: (10,000 × 4/15) = $2,667
Year 3: (10,000 × 3/15) = $2,000
Salvage value (also called residual value or scrap value) is the estimated amount an asset will be worth at the end of its useful life. It's used in calculating depreciation.
- Depreciable Base = Asset Cost - Salvage Value
- Used in straight-line and sum-of-years calculations
- Not used in declining balance method (depreciates to zero)
- Example: Machine worth $500 at end of useful life
Accelerated methods (Declining Balance, Sum-of-Years):
- Tax Benefits: Larger deductions in early years reduce current taxes
- Cash Flow: Improved cash flow through tax savings in earlier periods
- Realistic Wear: Reflects actual asset wear patterns (more wear early on)
- Technology Obsolescence: Captures rapid value loss in tech assets
Disadvantage: Lower reported profits in early years
Partial-year depreciation applies to assets purchased or sold mid-year. It calculates depreciation for the fraction of the year the asset was owned.
Example: Asset purchased June 15 (7.5 months in Year 1):
Partial Year: $2,000 × (7.5/12) = $1,250
Methods: Some companies use half-year convention (assume mid-year purchase), full-month convention, or actual dates.
In the U.S., depreciation is a tax-deductible business expense, reducing taxable income. This creates tax savings:
Tax Savings Formula:
Example: With $2,000 annual depreciation and 30% tax rate:
Special Cases: Section 179 deduction and bonus depreciation allow immediate full deduction of certain assets.