Depreciation Calculator

What Is Depreciation?

Depreciation is the systematic allocation of an asset’s cost over its useful life. It reflects the decline in value of a physical asset (machinery, vehicles, equipment, buildings) due to use, wear, and obsolescence.

Four Standard Methods

1. Straight-Line (SL)
Annual Depreciation = (Cost − Salvage Value) / Useful Life
The same amount is expensed each year. Simple, predictable. Most common for buildings and office equipment.

2. Double Declining Balance (DDB)
Rate = 2 / Useful Life
Year N depreciation = Book Value at Start of Year × Rate
Book value cannot fall below salvage value.
Accelerated method: higher expense in early years. Common for assets that lose value quickly (vehicles, computers, machinery).
Left alone, the declining balance never quite reaches salvage, because each year takes a share of what is left. So once straight-line on the remaining book value would charge more, the schedule switches to it. That is the standard fix, and it is what lets all four methods end at the same total.

3. Sum of Years Digits (SYD)
SYD = Life × (Life + 1) / 2
Year N Depreciation = ((Life − N + 1) / SYD) × (Cost − Salvage Value)
Also accelerated; front-loads expense but more gradually than DDB.

4. Units of Production (UOP)
Depreciation per Unit = (Cost − Salvage Value) / Total Estimated Units
Annual Depreciation = Units Used in Year × Depreciation per Unit
Ties depreciation directly to actual use; ideal for manufacturing equipment and vehicles with known mileage.

Key Terms

• Cost: original purchase price of the asset
• Salvage Value: estimated value at end of useful life (scrap value)
• Depreciable Base: Cost − Salvage Value
• Book Value: Cost − Accumulated Depreciation to date

Tax vs Financial Accounting

For tax purposes, many jurisdictions use MACRS (Modified Accelerated Cost Recovery System) in the US, which allows even more accelerated depreciation. For financial reporting (GAAP/IFRS), straight-line is most common. This calculator uses accounting depreciation, not tax depreciation.

IRS MACRS useful-life reference (common assets):

These are the lives MACRS assigns by class. For GAAP financial reporting you can pick any reasonable life. The IRS table is just a starting point most US small businesses use because it matches what they will claim on the tax return anyway.

A life like 27.5 years works here. Straight-line and double declining balance finish with a part year, and sum of years digits needs a whole number of years.

Choosing a Method

Use accelerated methods when:

• The asset generates more revenue/value early in its life
• You want to reduce taxable income in early years Use straight-line when:
• The asset generates equal benefit each year
• Simplicity is preferred