Why depreciate at all
A machine bought today is not an expense of today alone — it earns for years and wears out slowly. Depreciation spreads that cost across the years the asset is used, which is both an accounting requirement and the honest way to see what a year really cost to run.
The three methods
- Straight line:
(cost − salvage) ÷ life. The same amount every year. - Declining balance (double):
book value × 2 ÷ life. Heavier early, lighter later, and never below salvage. - Sum of years digits:
(cost − salvage) × remaining years ÷ sum of the years. Also front-loaded, but more gently.
Worked example
A 500,000 machine with a 50,000 salvage value over five years: straight line is 90,000 a year, every year. Under double declining it starts at 200,000 in year one and tapers off, reaching the same salvage value by the end.
How to use the depreciation calculator
- Enter the cost including delivery and installation — everything needed to get the asset working.
- Estimate the salvage value, what you could sell it for at the end. Zero is fine if it will be scrap.
- Pick the method and read the schedule. The accumulated column is what appears against the asset on a balance sheet.
Things to check
- Tax rules often prescribe their own rates and methods, which can differ from the ones you use in your accounts. Check with your accountant before filing.
- Land is not depreciated. Buildings, vehicles, machinery and computers all are, with very different useful lives.
- Declining balance suits assets that lose value fastest when new — vehicles and electronics are the usual examples.
Frequently asked questions
How do you calculate straight line depreciation?
Subtract the salvage value from the cost and divide by the useful life. A 500,000 asset with 50,000 salvage over five years depreciates 90,000 a year.
What is declining balance depreciation?
A method that charges a fixed percentage of the remaining book value each year, so the charge is large at first and falls over time. The double-declining version uses twice the straight-line rate.
What is book value?
The cost of the asset minus all the depreciation charged so far. It is what the asset is carried at in the accounts, not what it would fetch if you sold it.