Depreciation Calculator (Straight-Line, Declining Balance & SYD)

Three classic methods allocate the cost of an asset across its useful life, and the single most important thing about them is what they have in common: they all depreciate the same total amount. The depreciable base is cost less salvage, and every method exhausts it.

What differs is timing.

• Straight-line spreads the base evenly. Simple, and what most financial statements use.
• Declining balance applies a fixed percentage to the reducing book value, front-loading the charge heavily.
• Sum of years digits front-loads too, but more gently than double declining balance.

Front-loading matters because a deduction taken today is worth more than the same deduction in five years. It does not change the total.

Straight-line:

Declining balance applies a rate of factor ÷ life to the opening book value each year. At a factor of 2 over five years that is 40% a year. Note it applies to book value, not the depreciable base, which is why salvage does not affect the early years. The method switches to straight-line when that becomes more favourable, and never depreciates below salvage.

Sum of years digits weights each year by its remaining life over the sum of the digits. For a five-year asset the sum is 1+2+3+4+5 = 15, so year one takes 5/15 of the base, year two 4/15, and so on.

$100,000 cost, $10,000 salvage, five-year life:

• Depreciable base: $90,000
• Straight-line: $90,000 ÷ 5 = $18,000 a year, every year
• Double declining balance: 40% of the $100,000 opening book value = $40,000 in year one
• Sum of years digits: $90,000 × 5/15 = $30,000 in year one

Double declining balance takes $22,000 more than straight-line in year one, but every method totals $90,000 across the five years.

At a 1.5 factor instead of 2: the rate becomes 30%, giving $30,000 in year one -- coincidentally the same as sum of years digits here, though the later years differ.

With no salvage value: declining balance still gives $40,000 in year one, because the rate applies to book value rather than the depreciable base. Straight-line rises to $20,000, since the whole $100,000 is now depreciable.

• Tax depreciation. These are book methods. US tax depreciation uses MACRS, with its own class lives and half-year or mid-quarter conventions, handled by separate primitives and pages.
• Section 179 expensing and bonus depreciation, which can deduct much or all of an asset's cost immediately.
• Partial-year conventions. This assumes full years. Real assets are bought mid-year and most regimes prorate.
• Units of production depreciation, which allocates by usage rather than time.
• Component depreciation, where parts of an asset with different lives are depreciated separately.
• Impairment, which writes an asset down outside the normal schedule.
• Revaluation, permitted under IFRS but not US GAAP.
• Disposal. Selling above or below book value creates a gain or loss, and for tax purposes may trigger depreciation recapture.

• Believing accelerated methods deduct more. They do not. All three total the same $90,000 here. The benefit is the time value of taking deductions earlier, not a larger total.
• Applying the declining balance rate to the depreciable base. It applies to opening book value, which is why the year-one charge is $40,000 rather than 40% of $90,000.
• Forgetting the salvage floor. Declining balance would otherwise depreciate past salvage. The method stops there, which is also why it switches to straight-line late in life.
• Confusing book and tax depreciation. A company will commonly use straight-line in its accounts and MACRS on its return, and the difference creates deferred tax.
• Assuming double declining is always best. For an asset that genuinely wears evenly, straight-line reflects reality better, and financial statement users may prefer it.
• Ignoring the mid-year convention. Most real acquisitions get a partial first year, so a real year-one charge is often about half of what a full-year model shows.

• Standard accounting depreciation mathematics. Straight-line, declining balance and sum of years digits are conventional methods with no jurisdictional content.
• The declining balance implementation switches to straight-line when advantageous and never depreciates below salvage value, which is the usual convention.