A depreciation calculator spreads the cost of a long-lived asset across the years it is used, rather than dumping the whole cost into the year it was bought. That is the entire idea: a delivery van bought in March does not stop being useful in December, so charging its full cost against one year's profit would misstate every year involved. Depreciation is the mechanism that matches the cost to the periods that benefit from it.
Arb Digital publishes this in the free tool library at arbsbuy.com, and it is built for business owners who need the whole schedule rather than one figure. It differs from the live car depreciation calculator in scope: that tool applies a typical market value curve to a single vehicle, which is a resale question. This one builds an accounting schedule for any asset under the four standard methods and shows the expense and closing book value for every year of the life.
What This Depreciation Calculator Does
Enter the cost, the salvage value and the useful life, choose a method, and the tool produces the complete schedule. Every year appears as its own row, with the expense charged and the book value the asset carries at the end of that year. There is no single-year answer that leaves you to work out the rest.
Three method families are covered. Straight-line charges an equal amount every year. Declining balance charges a fixed percentage of the reducing book value, with an editable factor so you can run double-declining at 2.0, the 150 percent variant at 1.5, or anything in between. Sum-of-years-digits charges a declining fraction of the depreciable base, front-loading the expense without the geometric tail that declining balance produces.
The calculator also enforces the constraint that catches out hand-built spreadsheets: book value can never fall below salvage value. Under declining balance the raw formula happily depreciates past the floor, so the final years are trimmed to stop exactly at salvage. That is why the total depreciation figure always equals the depreciable base regardless of which method you choose.
How to Use It
- Enter the full capitalised cost. That is the purchase price plus delivery, installation and any other cost of getting the asset ready for use — not the invoice total alone.
- Estimate salvage value. If you expect the asset to be worthless at the end, enter zero and the whole cost becomes depreciable.
- Set the useful life in whole years. This is your estimate of the service period, which may differ from any life prescribed for tax purposes in your jurisdiction.
- Choose a method, and a factor if you picked declining balance. A factor of 2.0 gives double-declining balance, the most common accelerated approach.
- Read the schedule. Each row shows the year, the expense charged and the closing book value. The final closing book value should equal your salvage figure exactly.
The Formula / How It's Calculated
All three methods share one starting point, the depreciable base: cost − salvage value. With a cost of 50,000 and salvage of 5,000, the base is 45,000, and every method must charge exactly that amount in total.
Straight-line divides the base by the life: 45,000 ÷ 5 = 9,000 every year, taking book value from 50,000 down to 5,000 in five equal steps. Sum-of-years-digits weights the base by a declining fraction. The denominator is 1 + 2 + 3 + 4 + 5 = 15, and the numerators run in reverse, so year one takes 5/15 of 45,000 = 15,000, year two 4/15 = 12,000, then 9,000, 6,000 and 3,000. Those five figures sum to 45,000.
Declining balance applies a rate to the book value rather than the base. The rate is factor ÷ life, so a factor of 2 over five years gives 40 percent. Year one is 50,000 × 0.40 = 20,000, leaving 30,000. Year two is 30,000 × 0.40 = 12,000, leaving 18,000. Year three is 7,200, leaving 10,800; year four is 4,320, leaving 6,480. Year five would be 2,592 by formula, but that would take book value to 3,888 — below the 5,000 salvage floor — so the charge is trimmed to 1,480, the exact amount that lands on salvage. Total charged: 20,000 + 12,000 + 7,200 + 4,320 + 1,480 = 45,000, matching the base.
Why Accelerated Methods Exist When the Total Is the Same
Every method charges the same total over the life, so the choice cannot change how much depreciation you get. It changes when you get it, and timing is worth money for two distinct reasons.
The first is economic realism. Many assets genuinely lose more value early. A vehicle, a laptop fleet or a piece of production equipment is worth considerably less after twelve months than a straight line would suggest, and an accelerated method produces a book value closer to what the asset would actually fetch. It also spreads the total cost of ownership more evenly, because repair costs rise as depreciation falls — a straight-line charge plus rising maintenance makes later years look progressively worse than they are.
The second is cash timing. Depreciation reduces taxable profit in the year it is charged, so front-loading it defers tax. Deferred tax is not avoided tax — the schedule reverses in later years — but money retained now is worth more than money retained later, which is precisely the reasoning a discounted cash flow calculator formalises. That is why jurisdictions that want to encourage capital investment typically do it through accelerated write-offs rather than by changing rates.
Book Depreciation Is Not Tax Depreciation
This is the distinction that causes the most confusion, and it is worth stating plainly: the schedule this calculator produces is a book, or financial-reporting, schedule. Tax depreciation is a separate calculation governed by statute, and the two rarely match.
In the United States, tax depreciation for most business property runs on the Modified Accelerated Cost Recovery System, which prescribes a recovery period and a method rather than letting you estimate a useful life. It ignores salvage value entirely, applies conventions that determine how much of the first year you may claim, and interacts with elective provisions that can allow a large portion of the cost to be written off immediately. The Internal Revenue Service sets all of this out in Publication 946, How To Depreciate Property, and the claim itself is reported on Form 4562, Depreciation and Amortization.
Other jurisdictions do it differently again — some use pooled balances, some prescribe fixed annual rates by asset class. The practical consequence is that most businesses maintain two schedules, and the difference between them creates a deferred tax balance on the balance sheet. Use this tool for the book schedule, for management accounts, for asset registers and for modelling, and take the tax figures from the rules that apply where you file.
The Estimates That Do the Real Work
Cost is a fact. Useful life and salvage value are estimates, and they drive the schedule far more than the choice of method does.
Useful life has the largest single effect. Change the same 45,000 base from a five-year life to an eight-year life and the straight-line charge falls from 9,000 to 5,625 — a 37 percent reduction in annual expense with nothing physical changing. Because that flows straight through to reported profit, useful life estimates deserve to be defensible: base them on how long comparable assets have actually lasted in your business, not on how long you would like the expense spread.
Salvage value is usually the smaller lever but has one important structural effect. Set it to zero and the whole cost becomes depreciable, which is often realistic for computers, software and specialised equipment with no resale market. Set it high and you shrink the base for every method at once. Both estimates should be revisited when circumstances change materially; the standard treatment is to apply the revision prospectively, spreading the remaining book value over the remaining life, rather than restating years already reported.
Where the Schedule Shows Up Downstream
Depreciation is unusual among expenses in that no money moves when it is charged. The cash left the business when the asset was bought. That single property is why depreciation shows up in three different places and behaves differently in each.
On the income statement it reduces operating profit, which is why it is explicitly added back to reach EBITDA — earnings before interest, tax, depreciation and amortisation — using the logic behind the EBITDA calculator. On the cash flow statement it is added back to net income as a non-cash charge, and the actual cash outflow appears separately as capital expenditure, which is exactly the pairing the free cash flow calculator works with. On the balance sheet, accumulated depreciation reduces the carrying value of the asset, feeding the asset side of a net worth calculator or a company balance sheet.
Understanding all three at once explains why a profitable business can be cash-poor and why a loss-making one can be cash-generative. A year with heavy depreciation and no new purchases shows weak profit and strong cash. A year with light depreciation and heavy capital expenditure shows the opposite. The schedule on this page is the bridge between those two views, and it also feeds the COGS calculator whenever production equipment depreciation is absorbed into product cost.
Arb Digital helps established businesses win more of the searches their customers already run, so the capacity you have invested in is actually used.
SEO Services Talk to Arb DigitalCommon Mistakes to Avoid
- Depreciating past salvage value — declining balance will happily do it by formula, so the final years must be trimmed to land exactly on the floor.
- Applying declining balance to the depreciable base — the rate applies to book value, and only straight-line and sum-of-years-digits work from cost less salvage.
- Using a tax recovery period as a useful life — the two are set by different rules and coincide only by accident.
- Leaving installation and delivery out of cost — capitalised cost includes everything needed to get the asset into service, not just the invoice price.
- Depreciating land — land has no finite useful life and is not depreciated, though buildings and improvements on it are.
Related Free Tools From Arb Digital
Pair this with the car depreciation calculator for vehicle resale curves, the EBITDA calculator for earnings before the depreciation charge, the free cash flow calculator for the cash view of the same asset, the business loan calculator if the purchase was financed, the DCF calculator for valuing the cash flows it generates, and the percentage calculator for rate arithmetic. The full free online tools hub lists everything else.
Frequently Asked Questions
Cost minus salvage value, divided by useful life in years. An asset costing 50,000 with a 5,000 salvage value and a five-year life depreciates by 45,000 divided by 5, which is 9,000 every year.
The annual rate is 2 divided by the useful life, applied to the opening book value rather than to the depreciable base. Over five years the rate is 40 percent, so the first year charges 40 percent of the full cost and each later year charges 40 percent of a smaller balance.
The years are added together to form a denominator — for a five-year life that is 15 — and each year takes a fraction of the depreciable base with the numerators running in reverse. Year one takes 5/15, year two 4/15, and so on down to 1/15.
No. Every method charges exactly the depreciable base over the full life. What changes is the timing — accelerated methods move expense into earlier years, which defers tax and produces a book value closer to market value early on.
Because applying a fixed percentage to a shrinking balance never reaches zero and can pass below salvage value. The schedule trims the final years so the closing book value lands exactly on the salvage figure you entered.
No. This produces a book schedule for financial reporting and management accounts. Tax depreciation follows statutory rules that may prescribe recovery periods, ignore salvage value and apply first-year conventions, and those rules differ by country.
The usual treatment is prospective: spread the remaining book value over the remaining revised life from the point of the change, rather than restating years already reported. Confirm the treatment required under the standards you report under.
This calculator performs arithmetic on figures you supply and is provided for general information only. It is not accounting or tax advice, and it does not produce a tax depreciation schedule — those rules differ by country and by asset. Confirm your treatment with a qualified professional.
