Depreciation calculator: build a schedule with any of four methods
Depreciation spreads an asset's cost, less its residual value, over its useful life. Straight-line divides that amount evenly: a 50,000 machine with a 5,000 residual value and a 5-year life is depreciated by 9,000 a year. Declining balance and sum-of-the-years' digits charge more in early years; units of production follows actual usage.
Calculate a depreciation schedule
Results
- Depreciation in year 1
- 9,000.00
- Total depreciation
- 45,000.00
| Year | Opening book value | Depreciation | Accumulated depreciation | Closing book value |
|---|---|---|---|---|
| 1 | 50,000.00 | 9,000.00 | 9,000.00 | 41,000.00 |
| 2 | 41,000.00 | 9,000.00 | 18,000.00 | 32,000.00 |
| 3 | 32,000.00 | 9,000.00 | 27,000.00 | 23,000.00 |
| 4 | 23,000.00 | 9,000.00 | 36,000.00 | 14,000.00 |
| 5 | 14,000.00 | 9,000.00 | 45,000.00 | 5,000.00 |
| 45,000.00 |
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Depreciation formulas
The depreciable amount is cost minus residual value. Each method decides how that amount is allocated over the periods that benefit from the asset.
- Depreciable amount
- Base = Cost - Residual value
- Straight-line
- Annual = Base / Useful life
- Declining balance
- Annual = Opening book value × Rate
- Double declining rate
- Rate = 2 / Useful life
- Sum-of-the-years' digits
- Annual = Base × Remaining life / (n(n+1)/2)
- Units of production
- Annual = Base × Units this year / Total units
With declining balance, the calculator never takes book value below the residual value and charges the remaining amount in the final year.
Worked example: a 50,000 machine over 5 years
A workshop buys a machine for 50,000, expects to sell it for 5,000 after 5 years and estimates total output of 100,000 units (30,000, 25,000, 20,000, 15,000 and 10,000 a year). The depreciable amount is 45,000 under every method; only the timing changes.
Straight-line charges 9,000 a year. Double declining balance applies 40% to the opening book value, so year 1 is 20,000 and the last year only 1,480. Sum-of-the-years' digits uses fractions 5/15, 4/15 and so on. Units of production charges 0.45 per unit made.
| Year | Straight-line | Double declining | Sum-of-years' digits | Units of production |
|---|---|---|---|---|
| 1 | 9,000 | 20,000 | 15,000 | 13,500 |
| 2 | 9,000 | 12,000 | 12,000 | 11,250 |
| 3 | 9,000 | 7,200 | 9,000 | 9,000 |
| 4 | 9,000 | 4,320 | 6,000 | 6,750 |
| 5 | 9,000 | 1,480 | 3,000 | 4,500 |
| Total | 45,000 | 45,000 | 45,000 | 45,000 |
Assumptions behind the result
- The asset is available for use on the first day of year 1; partial first years (monthly or mid-year conventions) are not prorated.
- Residual value and useful life are your estimates and stay unchanged. Under IAS 16 they are reviewed at least at each year end.
- Declining balance switches to the residual value in the final year; it does not switch to straight-line earlier.
- The schedule is for financial reporting. Tax depreciation often follows separate rules, rates or tables set by each tax authority.
Which depreciation method should you choose?
Choose the method that best reflects how the asset's economic benefits are used up. IAS 16 requires that match and does not prefer one method; US GAAP takes the same approach.
| Method | Pattern | Typical assets |
|---|---|---|
| Straight-line | Even charge every year | Buildings, furniture, fit-outs |
| Declining balance | High early, low later | Vehicles, computers, technology that loses value fast |
| Sum-of-the-years' digits | Front-loaded, declines evenly | Equipment with falling productivity |
| Units of production | Follows actual use | Machines, mining equipment, aircraft engines (hours) |
How depreciation is recorded
Each period you debit depreciation expense and credit accumulated depreciation, a contra account shown against the asset's cost. The asset account keeps the original cost, and cost minus accumulated depreciation is the carrying amount on the balance sheet.
For the straight-line example the yearly adjusting entry is: debit depreciation expense 9,000, credit accumulated depreciation 9,000. The IFRS chart of accounts template includes both accounts for each class of property, plant and equipment.
How to build a depreciation schedule
- 1
Record the cost
Include the purchase price, import duties, delivery and installation needed to bring the asset into use.
- 2
Estimate residual value and life
Estimate what the asset will fetch at the end of its use and how many years or units it will deliver.
- 3
Pick a method
Choose the pattern that matches how the asset is consumed: even, front-loaded or usage-based.
- 4
Compute each year
Apply the method's formula to get the charge, then subtract it from the opening book value.
- 5
Post the entries
Each period, debit depreciation expense and credit accumulated depreciation, and review estimates at year end.
Frequently asked questions
What is the simplest way to calculate depreciation?
Straight-line: subtract the residual value from the cost and divide by the useful life in years. A 12,000 laptop fleet with no residual value and a 3-year life is depreciated by 4,000 a year.
What is double declining balance?
It applies twice the straight-line rate to the opening book value each year. For a 5-year asset that is 40% of the remaining book value, which makes early charges larger and later charges smaller.
Is land depreciated?
No. Land normally has an unlimited useful life, so it is not depreciated. When you buy a building with its land, split the price and depreciate only the building.
When does depreciation start?
When the asset is available for use, meaning it is in the location and condition needed to operate, even if you have not started using it. It stops when the asset is derecognised or classified as held for sale.
Can I change the depreciation method later?
Yes, if the pattern of use changes. Under IAS 16 the change is a change in accounting estimate: it applies from the current period onward, without restating prior years.
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