Depreciation Calculator
This depreciation calculator estimates how fast the value of an asset decreases over time. By offering multiple depreciation methods, it provides a detailed depreciation schedule tailored to your asset. It provides the visual chart for comparing book value and depreciation amount and provides valuable insights into your asset's value decline. This calculator is designed to simplify depreciation calculations for accounting and tax purposes.
What Is Depreciation?
Depreciation refers to the decrease in the value of an asset over time due to two main factors, wear and tear (e.g., wearing of machine parts) or obsolescence(e.g., technology becoming old with time).
In accounting, depreciation is the way to spread the cost of an asset over its useful life. It helps to understand the contribution of assets in generating revenue. This helps to portray a clear picture of a company's financial health.
How To Calculate Depreciation (Top 4 Methods)?
Use these methods for calculating the amount of depreciation. The selection of depreciation methods depends upon the type of asset and the value-decreasing pattern.
1: Straight Line Method of Depreciation
Straight-line depreciation or SLD is a very common and the simplest method to calculate depreciation expense. The expense amount is the same every year over the useful life of an asset. The SLD incorporates a salvage value (an estimated value that an owner would receive when selling an asset at the end of its useful life). It spreads the cost of an asset, minus its estimated salvage value, evenly over its useful life.
Depreciation Per Year = Asset Cost - Salvage Value Useful Life
Steps:
- Subtract the salvage value of the asset from the cost
- Divide the result by the number of years (assets useful life)
- Now divide the resultant value by 12 to get the monthly depreciation value
2: Declining Depreciation Method
This method accelerates depreciation expense by applying a constant rate to the asset's decreasing book value each year. It recovers the cost of assets faster in the early years. For instance, a new car loses more of its value in the very first few years of its use.
Depreciation Per Year = Book Value × Depreciation Rate
Steps:
- Divide 100% by the useful life of the asset
- Multiply the depreciation rate by the book value
3: The Sum of Years’ Digits Method
This is an accelerated depreciation method that refers to a higher depreciation expense in the asset’s useful life. That’s why the depreciable amount of an asset is charged according to a declining fraction over different accounting periods under this method. This fraction is applied to the asset's depreciable base (cost minus salvage value). Meanwhile, the depreciation rate is high in the early years and slows down in the later years.
Depreciation for the Year = (Asset Cost - Salvage Value) × factor
1st Year Factor = n 1 + 2 + 3 + …+n
2nd Year Factor = n - 1 1 + 2 + 3 + …+n
3rd Year Factor = n - 2 1 + 2 + 3 + …+n
Last Year Factor = 1 1 + 2 + 3 + …+n
Where:
- n represents the asset’s useful life
Steps:
- Subtract the salvage value from the original cost to get the depreciable base
- Divide the depreciable base by the useful units (Life) to determine the Depreciation Per Unit
- Multiply depreciation per unit by the units produced
4: Units of Production Depreciation Method
This depreciation is based on the usage of the asset. It is perfect for assets that wear out mainly because of usage like machinery or vehicles etc.
It involves the following two steps for calculating depreciation:
Steps:
- Calculate Depreciation Per Unit
Depreciation Per Unit = (Cost − Salvage) Expected Number of Units Over Lifetime
Depreciation Expense = Number of units produced this period × Depreciation per unit
Also, with just a few clicks, our online depreciation calculator lets you determine how fast an asset loses value over its useful life.
FAQ’s:
What Is The Most Commonly Used Depreciation Method?
The most common method is straight-line depreciation because it is easy to calculate. It results in a consistent value for each year.
What Is A Good Depreciation Percentage?
It is good to have a lower depreciation percentage, a low depreciation shows that the asset is nicely holding its value. A good depreciation percentage depends upon the type and the lifespan of the asset.
What Is The Difference Between Depreciation And Amortization?
- Depreciation: It indicates the decline in the value of a tangible asset (physical asset) over time. The purpose of depreciation is to spread the cost of the asset over its lifespan
- Amortization: This is a way to allocate the cost of the intangible asset (non-physical asset). They don't wear but their value still goes down with time
Why Is It Necessary To Calculate Depreciation?
Depreciation is very helpful for businesses. It lets you spread the cost of an asset (like equipment or property) over its useful life, instead of treating it as an immediate expense. It provides various benefits including:
- Accurate Accounting: Depreciation helps to portray a clear picture of a company’s assets and financial health
- Tax Reduction: When calculating the tax liabilities, the depreciation expense is subtracted from the taxable income, lowering the total amount of tax
- Informed Decision-Making: Depreciation value helps in decision-making for the future. It lets you decide when and which assets should be replaced and what investments should be made to generate profit
How Do I Calculate Accumulated Depreciation?
Accumulated depreciation is the total expense recorded for an asset up to a specific point in time.
- For The First Year: It is equal to the depreciation for that year
- For The Subsequent Years: Add the depreciation expense of the first year in the previous year's depreciation and every year up until the current year to get the accumulated depreciation
Accumulated Depreciation (Current Year) = Accumulated Depreciation (Previous Year) + Depreciation Expense (Current Year)
Simplify your tax and financial planning by calculating accumulated depreciation manually or by using our accumulated depreciation calculator for quick solutions.
References:
From the source of Wikipedia: Depreciation Definition Accountancy - Accounting Concept.
From the source of WikiHow: How to Calculate Double Declining Depreciation.
Other Languages: Calculo De Depreciação, 減価償却 計算, Odpisy Kalkulačka, Calcolo Ammortamento, Perhitungan Penyusutan, Kalkulator Amortyzacji
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