Depreciation Calculator
Inputs
| Depreciation Method | Straight-Line (SL) |
|---|---|
| Asset Cost | 50,000 $ |
| Salvage Value | 5,000 $ |
| Useful Life | 5 yr |
| Year to Compute | 1 |
| Total Lifetime Units | 100,000 |
| Units This Period | 20,000 |
Depreciation Calculator
Calculate depreciation expense and book value using straight-line, declining balance, double declining balance, or units of production methods.
Inputs
Depreciation Method
Results
Enter a value to see results.
Details
Depreciation
Depreciation is the process of systematically expensing the cost of a long-lived asset over the years it is in service. When a business buys a $50,000 piece of equipment, accounting standards (GAAP and IFRS) require spreading that cost across the asset's useful life rather than recording the entire $50,000 as an expense in the year of purchase. This calculator covers the four methods most commonly used in practice: straight-line, declining balance, double declining balance, and units of production — showing the annual charge, accumulated depreciation, and remaining book value for any set of asset inputs.
Key terminology
Before choosing a method, it helps to know the core concepts:
- Cost — the total acquisition price of the asset, including purchase price, freight, installation, and any other costs needed to bring it into service.
- Salvage value — the estimated resale or scrap value at the end of useful life. Sometimes called residual value. Set to zero if the asset will be worthless at retirement.
- Depreciable base — cost minus salvage value. This is the total amount to be expensed over the asset's life.
- Useful life — the number of years the asset is expected to remain productive.
- Book value — the carrying amount on the balance sheet: original cost minus accumulated depreciation. It can never fall below salvage value.
The four depreciation methods
Straight-line (SL)
The simplest and most widely used method. The annual depreciation charge is the same every year:
D=NC−Swhere is cost, is salvage value, and is useful life in years. The book value decreases at a constant pace, reaching the salvage value exactly at the end of year .
Best for: assets that provide roughly even utility each year — office furniture, buildings, patents, software licenses.
Declining balance (DB)
Applies a fixed rate to the remaining book value at the start of each year, so the charge is front-loaded and shrinks over time:
Dy=C⋅r⋅(1−r)y−1,r=N1The accumulated depreciation through year (capped at the depreciable base) is:
Accumulatedy=min(C⋅(1−(1−r)y),C−S)The book value can approach but never drop below the salvage value.
Best for: assets that lose economic value faster early in their lives.
Double declining balance (DDB)
Identical to declining balance but with the rate doubled:
rDDB=N2This accelerates depreciation even more aggressively. In practice, companies often switch to straight-line in later years when the straight-line charge would exceed the remaining DDB charge — though this calculator shows the pure DDB result.
Best for: technology equipment, vehicles, any asset that depreciates fastest in its first few years.
Units of production (UoP)
Ties the depreciation charge to actual usage rather than the passage of time:
D=(C−S)×Uuwhere is the number of units produced (or hours run, miles driven, etc.) in the current period and is the total expected lifetime units.
Best for: manufacturing machinery with rated production cycles, vehicles measured in miles, printing equipment measured in pages printed. The method produces higher expense in high-output periods and lower expense in idle periods, giving a truer picture of cost consumption.
Worked example
A manufacturing company buys a CNC machine for $47,500, estimates a salvage value of $3,500 after 8 years, and expects to run it for a total of 240,000 hours over its life. In the first year, it runs 38,000 hours.
| Method | Year 1 depreciation | Year 1 book value |
|---|---|---|
| Straight-line | $44,000 / 8 = $5,500 | $42,000 |
| Declining balance (r = 12.5%) | $47,500 × 0.125 = $5,937.50 | $41,562.50 |
| Double declining (r = 25%) | $47,500 × 0.25 = $11,875 | $35,625 |
| Units of production | $44,000 × (38,000/240,000) = $6,967 | $40,533 |
The same $47,500 asset generates a depreciation expense ranging from $5,500 to $11,875 in year one depending on the method — a difference that directly affects reported profit.
Comparing methods side by side: a 5-year schedule
Using the calculator's default inputs ($50,000 cost, $5,000 salvage, 5-year life), here is how each method plays out:
| Year | SL charge | DB charge | DDB charge | Book value (SL) | Book value (DDB) |
|---|---|---|---|---|---|
| 1 | $9,000 | $10,000 | $20,000 | $41,000 | $30,000 |
| 2 | $9,000 | $8,000 | $12,000 | $32,000 | $18,000 |
| 3 | $9,000 | $6,400 | $7,200 | $23,000 | $10,800 |
| 4 | $9,000 | $5,120 | $4,320 | $14,000 | $6,480 |
| 5 | $9,000 | $4,096 | $1,480* | $5,000 | $5,000 |
*Year 5 DDB charge is capped so book value does not fall below salvage.
Note how the DDB method front-loads 71 % of total depreciation into the first two years ($32,000 of $45,000), while straight-line spreads it evenly.
Financial-statement effects of the method choice
Income statement impact
Accelerated methods (DB, DDB) reduce reported income in early years and increase it in later years compared with straight-line. This can affect earnings-per-share, loan covenants, and management bonuses tied to profit targets.
Balance sheet impact
Higher early depreciation means a lower book value for the asset. Companies with a large proportion of fully-depreciated assets on their books may have significant understatement of replacement cost — a common issue when analysing asset-heavy industries like manufacturing or transportation.
Cash flow
Depreciation is a non-cash expense, so it does not directly affect cash. However, for tax purposes, accelerated depreciation reduces taxable income in early years, deferring tax liability and improving cash flow in the near term.
What this calculator does not model
- Tax depreciation schedules. In the United States, MACRS (Modified Accelerated Cost Recovery System) governs tax depreciation and does not always match book depreciation. The methods here are book/financial accounting methods only.
- Switching methods. Accounting standards generally require consistency; changing depreciation methods requires disclosure and retrospective adjustment.
- Component depreciation. IFRS allows (and in some cases requires) depreciating significant parts of an asset separately — a building's structure vs. its roof vs. its HVAC system, for example.
- Impairment. If an asset's recoverable amount drops below its book value, an impairment write-down is required in addition to routine depreciation.
Frequently Asked Questions (FAQ)
What is depreciation?
Depreciation is the systematic allocation of an asset's cost over its useful life. Because long-lived assets (equipment, vehicles, buildings) generate revenue over many years, accounting standards require spreading the purchase cost across those years rather than expensing the full amount in year one. This matches expense recognition to the revenue the asset helps generate — a core principle of accrual accounting under both GAAP and IFRS.
What is the difference between straight-line and declining balance depreciation?
Straight-line depreciation deducts the same dollar amount each year: (cost − salvage) / useful life. The charge is predictable and the same regardless of how intensively the asset is used.
Declining balance depreciation applies a fixed percentage to the remaining book value each year, so the annual charge is highest in early years and decreases over time. This front-loading can be advantageous for assets that lose value quickly (technology, vehicles) or when a business wants larger early tax deductions. In practice, many businesses switch from declining balance to straight-line in later years when the straight-line amount exceeds the declining-balance charge.
How do you calculate double declining balance depreciation?
Double declining balance (DDB) uses twice the straight-line rate applied to the remaining book value. The rate is 2 / useful life years. In year y, the book value at the start of the year is cost × (1 − rate)^(y − 1), and the depreciation charge is that book value × rate.
For example, a $50,000 machine with a 5-year life has a DDB rate of 40%. Year 1 depreciation = $50,000 × 0.40 = $20,000; year 2 = ($50,000 − $20,000) × 0.40 = $12,000; and so on. The book value never falls below the salvage value — once accumulated depreciation reaches (cost − salvage), no further charge is taken.
When should I use units of production depreciation?
The units of production method is best when an asset's wear and tear is driven by usage rather than time — for example, manufacturing machinery rated for a total number of production cycles, vehicles measured in miles driven, or printing equipment measured in pages printed. The annual depreciation charge equals (cost − salvage) × (units used this year / total lifetime units).
This method produces expense that tracks actual asset consumption, giving a more accurate picture of profitability in periods of high or low activity. It is generally not appropriate for assets that deteriorate mainly through obsolescence or time (buildings, patents, office furniture).
Disclaimer
This calculator illustrates standard depreciation formulas for educational purposes only. Tax depreciation rules (MACRS, CCA, or other jurisdiction-specific schedules) differ from book depreciation and vary by asset class, country, and tax year. Always consult a qualified accountant or tax advisor to determine the correct depreciation method and schedule for your specific asset and jurisdiction.
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