How to Use
- Enter asset details
Input the asset cost and salvage value (residual value at end of life).
- Choose method
Select straight-line or declining balance method and enter the useful life in years.
- View results
See yearly depreciation expense and remaining book value schedule.
What Is Depreciation? Spreading an Asset's Value as Expense
Depreciation is the accounting procedure of recognizing the acquisition cost of a tangible asset used for more than a year — such as buildings, machinery, or vehicles — not all at once, but spread as an expense across the periods in which the asset is actually used. As an asset loses value through use, wear, and technological change, the core idea is to match that decline as an expense in each accounting period.
Why spread it out
- Matching revenue and expense: The cost is distributed over the period the asset generates revenue, giving an accurate picture of profit and loss.
- Calculating book value: Acquisition cost minus accumulated depreciation becomes the current book value on the balance sheet.
- Tax effect: Depreciation is recognized as an expense, lowering taxable income and corporate tax — a tax-saving tool.
This calculator shows the yearly depreciation expense and the change in book value at a glance using the straight-line method and the declining balance method.
Calculation Formula
The straight-line method divides the depreciable amount evenly over the useful life.
Annual depreciation = (Acquisition cost − Salvage value) ÷ Useful life
e.g. With an acquisition cost of 10,000,000, salvage value of 1,000,000, and a useful life of 5 years, (10,000,000 − 1,000,000) ÷ 5 = 1,800,000 is depreciated equally every year.
The declining balance method multiplies the book value at each period-end by a fixed rate (default 40%).
Period depreciation = Beginning book value × Depreciation rate
e.g. Applying 40% to the same asset, year 1 is 10,000,000 × 0.4 = 4,000,000 and year 2 is 6,000,000 × 0.4 = 2,400,000, so more is depreciated early on, and the calculation automatically adjusts so the book value never falls below the salvage value (1,000,000).