Depreciation Calculator

Depreciation is the loss in value of an asset as it ages and is used. A delivery van, a machine or a computer costs a lot at first, but it wears out and becomes less valuable. Businesses spread the cost of the asset over the years it is useful, instead of counting the whole cost in year one. The Depreciation Calculator shows how much to write off each year, using four common methods.

What you enter

• Cost of the asset: what you paid, including delivery and set-up.
• Salvage value: what the asset is expected to be worth at the end of its useful life. Use 0 if you expect nothing.
• Useful life: the number of years you expect to use it.
• Method: how the depreciation is spread over the years.

The amount that can be written off in all is the cost minus the salvage value. It is called the depreciable amount. The asset is never written down below its salvage value.

The four methods

Straight-line writes off the same amount every year. It is the simplest method:

yearly depreciation = (cost - salvage value) / useful life

Double declining balance takes a fixed percentage of the asset's current value each year, at double the straight-line rate. It writes off more in the early years, when a new asset loses value fastest:

rate = 2 / useful life
yearly depreciation = value at the start of the year x rate

150% declining balance works the same way, but at 1.5 times the straight-line rate, so it is less steep.

Sum-of-the-years' digits uses a fraction that gets smaller each year. For a life of 5 years, the digits add up to 5 + 4 + 3 + 2 + 1 = 15. Year 1 gets 5/15 of the depreciable amount, year 2 gets 4/15, and so on:

yearly depreciation = (cost - salvage value) x years remaining / sum of the digits

The declining-balance methods never quite reach the salvage value on their own, because they only take a share of what is left. So the calculator switches to straight-line for the rest of the life, once that gives a bigger amount. The asset then ends exactly at its salvage value.

A worked example

A machine costs $50,000. It will be worth $5,000 after 5 years. The depreciable amount is $45,000.

All four methods write off the same $45,000. They differ only in when. In the double declining method, the fifth year is $1,480 instead of $2,592, because the asset cannot go below its $5,000 salvage value.

Chart: the value of the machine

The value of the machine at the end of each year, in thousands of dollars, with straight-line and double declining balance:

Straight-line
Start   ████████████████████████████████████████ $50,000
Year 1  ████████████████████████████████████████ $41,000
Year 2  ██████████████████████████ $32,000
Year 3  ██████████████████ $23,000
Year 4  ███████████ $14,000
Year 5  ████ $5,000

Double declining balance
Year 1  ████████████████████████ $30,000
Year 2  ██████████████ $18,000
Year 3  █████████ $10,800
Year 4  █████ $6,480
Year 5  ████ $5,000

Which method to use?

• Straight-line fits assets that lose value evenly, such as a building or furniture. It is simple, and common in reports.
• Declining balance and sum-of-the-years' digits fit assets that lose most of their value early, like vehicles, computers and machinery. They also give bigger deductions in the early years.
• For taxes, most countries have their own required schedules, such as MACRS in the U.S. They use set lives and rates. Ask an accountant which apply to you.

What this calculator does not include

• Partial first years. The calculator counts whole years.
• Depreciation by units of use, such as miles or machine hours.
• Tax rules, such as MACRS tables, bonus depreciation or Section 179 in the U.S.
• Changes to the useful life or salvage value later on, and repairs that add value.

This tool gives an estimate for general information and learning only. It is not accounting or tax advice. Ask a qualified accountant for what applies to your business.