What is Depreciation?
Depreciation is the process of allocating the cost of a tangible asset over its useful life. It represents how much of an asset's value has been used up. Businesses use depreciation for accounting and tax purposes to match the expense of using an asset with the revenue it helps generate.
Straight Line Depreciation Method
This is the simplest and most commonly used depreciation method. It assumes that the asset loses value at a constant rate over its useful life.
Formula:
Annual Depreciation = (Asset Cost − Salvage Value) ÷ Useful Life in Years
Depreciation Rate per Year = 100% ÷ Useful Life
Input Fields Explained
- Asset Cost: The original purchase price or acquisition cost of the asset.
- Salvage Value: The estimated residual value of the asset at the end of its useful life (what you expect to sell it for or its scrap value).
- Depreciation Years: The expected useful life of the asset in years.
- Round to dollars?: Whether to round all depreciation amounts to the nearest whole dollar.
- Partial year depreciation?: If the asset was placed in service partway through the year, you may want to calculate only a portion of the annual depreciation for the first year.
How the Schedule is Calculated
The calculator builds a year-by-year schedule showing:
- Beginning book value for each year
- Depreciation percentage and amount for that year
- Accumulated depreciation to date
- Ending book value after depreciation
At the end of the asset's useful life, the book value should equal the salvage value.
Important Notes
- Straight Line is best for assets that lose value consistently over time (furniture, buildings, equipment with steady usage).
- For assets that lose more value in early years (vehicles, computers), consider using Declining Balance or MACRS methods (not included in this version).
- Always consult with a tax professional or accountant for the depreciation method allowed by your local tax authority.
- Salvage value can be zero if you expect the asset to have no resale value at the end of its life.