Depreciation Calculator
Calculate depreciation for business assets using different methods: straight-line, declining balance, and units of production. Depreciation helps allocate the cost of tangible assets over their useful life.
Depreciation Parameters
Depreciation Summary
Method Details
Depreciation Schedule
Enter asset details and calculate to see the depreciation schedule.
Understanding Depreciation
Depreciation is the process of allocating the cost of a tangible asset over its useful life. It represents the decrease in value of an asset over time due to wear and tear, obsolescence, or other factors. Depreciation is important for accounting purposes as it helps match expenses with revenues and provides a more accurate picture of a company's financial health.
Depreciation Methods
Straight-Line Depreciation
- Most common and simplest method
- Equal depreciation amount each year
- Formula: (Cost - Salvage) / Useful Life
- Best for assets with consistent usage
Declining Balance Depreciation
- Accelerated depreciation method
- Higher depreciation in early years
- Uses a fixed percentage rate
- Good for assets that lose value quickly
Units of Production Method
Depreciation based on actual usage
How It Works:
- Depreciation per unit = (Cost - Salvage) / Total Units
- Period depreciation = Units produced × Rate per unit
- Best for assets with variable usage
- More accurate for production equipment
Advantages:
- Matches expenses with actual usage
- More accurate cost allocation
- Useful for tax purposes
- Reflects actual wear and tear
Key Depreciation Terms
Cost Basis:
Original purchase price plus any improvements or additions to the asset.
Salvage Value:
Estimated residual value of the asset at the end of its useful life.
Useful Life:
Estimated period over which the asset will be productive and generate revenue.
Book Value:
Current value of the asset on the company's balance sheet (Cost - Accumulated Depreciation).
Tax Implications
Tax Depreciation:
- May differ from book depreciation
- MACRS system in the US
- Section 179 deduction available
- Bonus depreciation for certain assets
Impact on Taxes:
- Reduces taxable income
- Creates tax shield
- Timing affects cash flow
- Different methods for different tax benefits
Choosing the Right Method
| Asset Type | Recommended Method | Reason |
|---|---|---|
| Buildings | Straight-Line | Consistent usage over long periods |
| Vehicles | Declining Balance | Higher depreciation in early years |
| Machinery | Units of Production | Usage-based depreciation |
| Computers | Declining Balance | Rapid technological obsolescence |
Key Takeaways for Depreciation
- Depreciation allocates asset costs over useful life for accurate financial reporting
- Straight-line method provides equal annual depreciation amounts
- Declining balance accelerates depreciation in early years
- Units of production method bases depreciation on actual usage
- Tax depreciation may differ from book depreciation
- Choose the method that best matches asset usage patterns
- Regular depreciation calculations are essential for accurate financial statements
- Consult with accountants for complex depreciation scenarios