Asset Depreciation Calculator

What Is Asset Depreciation?

Depreciation measures the decrease in an asset's value over time. Assets such as equipment, vehicles and phones can lose value as they age or are used. Depreciation can also matter when a business determines deductions associated with qualifying assets, although tax treatment depends on applicable rules.

There are several ways to calculate depreciation. The appropriate method depends on the asset and the purpose of the calculation.

How Straight-Line Depreciation Works

Straight-line depreciation divides an asset's depreciable cost evenly over its estimated useful life. Under this method, the annual depreciation amount stays the same each year.

To calculate it, identify three values:

• Purchase price: The original amount paid for the asset.
• Salvage value: The estimated amount the asset will be worth at the end of its useful life.
• Useful life: The number of years you expect to use the asset.

Straight-line depreciation formula

Annual depreciation = (Purchase price - Salvage value) / Useful life in years

Subtract the estimated salvage value from the purchase price to determine the depreciable amount. Then divide that amount by the asset's useful life to find its annual depreciation.

Four Common Depreciation Methods

Different methods recognize an asset's declining value in different ways:

• Straight-line depreciation: Spreads depreciation evenly across the asset's useful life.
• Units-of-production depreciation: Ties depreciation to how much an asset is used or produces.
• Sum-of-the-years'-digits depreciation: Assigns more depreciation to earlier years and less to later years.
• Declining-balance depreciation: Applies greater depreciation in earlier years and smaller amounts later. Double-declining balance is an accelerated variation.

Why Depreciation Matters for Business Planning

Tracking depreciation helps you understand how the recorded value of business assets changes over time. It can also be relevant to financial reporting and tax calculations. The method used for one purpose may not be the same as the method required for another.

Start with accurate purchase information, a reasonable estimate of salvage value and an expected useful life. These inputs provide a foundation for understanding the cost of using an asset over time.

Frequently Asked Questions

What is depreciable cost?

Depreciable cost is the asset's purchase price minus its estimated salvage value. Under the straight-line method, that amount is spread across the asset's useful life.

Does straight-line depreciation change each year?

Under a basic straight-line calculation, the annual depreciation amount remains the same throughout the asset's estimated useful life.

Is depreciation the same as an asset's resale value?

No. Depreciation is a method of allocating or measuring an asset's declining value. The amount someone would pay for the asset may differ from its depreciated book value.