How a Depreciation Calculator Works
Depreciation is the process of spreading the cost of a long-lived asset — like equipment, vehicles, or machinery — across the years it is used, rather than expensing it all at once. A depreciation calculator works out how much value the asset loses each year and tracks its remaining book value, producing a schedule that accountants and business owners rely on.
Different methods allocate that cost differently. Straight-line spreads it evenly, while declining balance and double declining balance front-load the expense to reflect assets that lose value fastest early in their life. This calculator supports all three and shows the full year-by-year schedule of depreciation, accumulated depreciation, and book value.
The Depreciation Formulas
Each method calculates the annual depreciation differently, where cost is the purchase price, salvage is the end-of-life value, and life is the useful life in years:
- Straight-Line = (Cost − Salvage) ÷ Life, the same each year
- Declining Balance = Book Value × (1 ÷ Life) each year
- Double Declining Balance = Book Value × (2 ÷ Life) each year
- Total Depreciation = Cost − Salvage Value
How to Choose a Depreciation Method
The right method depends on the type of asset and how it loses value. Here is how the common methods compare.
- Straight-line is simplest and best for assets that lose value steadily, such as buildings and furniture.
- Declining balance front-loads the expense, suiting assets that lose most value early in their life.
- Double declining balance is an accelerated method often used for technology and vehicles.
- Regardless of method, the book value never falls below the salvage value you set.
Frequently Asked Questions
What is salvage value?
Salvage value is the estimated amount you expect the asset to be worth at the end of its useful life, such as its resale or scrap value. Depreciation is calculated only on the portion of the cost above the salvage value, and the asset's book value never depreciates below that figure. If you expect the asset to be worthless at the end, set salvage value to zero.
What is the difference between declining balance and double declining balance?
Both apply a fixed percentage to the asset's remaining book value each year, front-loading the expense. The difference is the rate: declining balance uses one divided by the useful life, while double declining balance doubles that rate. Double declining therefore depreciates the asset faster in the early years.
Which depreciation method should a small business use?
Straight-line is the most common and easiest to apply, making it a sensible default for many assets. Accelerated methods like double declining balance can be advantageous when you want larger deductions in the early years. The best choice depends on the asset type and your accounting or tax strategy, so consult a tax professional for guidance.