Depreciation Calculator

What this calculator does

Asset cost, salvage value, useful life and a method go in. It builds the full schedule and reports the expense for any year you pick, the accumulated total, the book value at that point, the first-year expense, and the straight-line equivalent for comparison.

The straight-line comparison is deliberately always shown, because the only honest way to evaluate an accelerated method is against the boring one.

The depreciable base

Everything starts here: cost minus salvage value.

Cost is not just the purchase price. It includes everything required to put the asset into service — freight, installation, setup, testing, calibration. A $42,000 machine with $3,000 of rigging and installation has a $45,000 cost basis, and the extra $3,000 is depreciated exactly like the rest.

Salvage value is what it will be worth at the end of its useful life. It is an estimate, and in tax practice it is frequently zero, because prescribed recovery methods generally ignore it. For financial reporting it is a real judgement, and for expensive equipment with a genuine resale market it can be a large fraction of the cost.

The difference is the depreciable base. No method ever depreciates more than that. This is the guard rail the calculator enforces on every method — expense is capped so book value never falls below salvage.

Three methods, one total

The most important thing to internalise: all three methods deduct exactly the same amount over the asset’s life. Cost minus salvage. Nothing more.

What differs is when.

Straight line divides the base evenly. Same expense every year. It is the default for financial reporting because it is simple, predictable, and does not distort year-to-year comparisons. If the asset genuinely wears out evenly — a building, a leasehold improvement — it is also the most accurate.

Declining balance applies a fixed rate to the remaining book value rather than to the original base. At double-declining (factor 2) over seven years, the rate is 2/7 ≈ 28.6 percent of whatever is left. Year one takes 28.6 percent of $45,000; year two takes 28.6 percent of what remains. Big early, small late.

This matches how most equipment actually behaves. A vehicle loses more value in its first year than in its fifth, and a computer is worth a fraction of its cost after two years regardless of whether it still works.

Sum-of-the-years’ digits accelerates more gently. Add the digits of the life — for seven years that is 7+6+5+4+3+2+1 = 28 — and take 7/28 of the base in year one, 6/28 in year two, down to 1/28 in year seven. Unlike declining balance, it lands exactly on salvage at the end without needing a switch or a cap.

Why front-loading is worth real money

If the total is identical, why does anyone accelerate?

Time value. A deduction this year reduces this year’s tax bill, and that money can be invested, or used to buy the next asset, or simply not borrowed. A $10,000 deduction now is worth more than a $10,000 deduction in year seven by roughly the return you can earn in between.

Matching. Accounting theory says expense should be recognised when the economic benefit is consumed. If an asset delivers most of its value early — which most equipment does — accelerated depreciation is not a trick, it is a more faithful description.

Cash flow when it is scarcest. A business that just spent $45,000 on equipment has less cash than it did last month. A deduction in that year is more useful than one three years later, when the business is presumably in better shape.

Book depreciation is not tax depreciation

This calculator does book depreciation — the accounting concept, with a useful life you estimate and a method you choose.

US tax depreciation is a different system. It uses prescribed recovery periods by asset class rather than your estimate of useful life, prescribed conventions about when in the year an asset is treated as placed in service, and prescribed methods. It generally ignores salvage value. And separate expensing elections can allow a very large first-year deduction that none of the methods here produce.

So the schedule this builds will not match a tax return. It will teach you exactly how the mechanics work, which is what makes the conversation with your accountant a shorter one.

Reading book value

Book value is cost minus accumulated depreciation. It is an accounting figure, not a market price, and the gap between them is often large in both directions.

Two places it matters concretely:

When you sell. Sale price above book value produces a gain — and where the asset was depreciated, part of that gain is recapture, taxed differently. The capital gains estimator covers the structure of that calculation.

On the balance sheet. A business full of fully depreciated but perfectly functional equipment shows almost no assets. That is correct accounting and a misleading picture, and it is worth knowing when reading anyone’s financials including your own.

What this leaves out

• Tax recovery periods, conventions and expensing elections. Discussed above. This is book depreciation.
• The mid-year and mid-quarter conventions, which prorate the first and last year.
• Partial-year purchases. The schedule starts at a full year one.
• The declining-balance switch to straight line, used in tax practice once straight line on the remaining balance exceeds the declining amount.
• Component depreciation, where parts of an asset have different lives.
• Impairment, a separate write-down when an asset loses value suddenly.
• Amortisation of intangibles, which follows related but distinct rules.

For the vehicle version of this decision, the mileage vs actual expenses calculator compares the standard rate against actual costs including depreciation.