Depreciation Calculator

Background

Why one purchase turns into a schedule

A machine bought for 50,000 does not cost 50,000 in the year it is bought. It gives up its usefulness slowly, and accounting follows that: the purchase price is spread across the years the asset earns its keep. Depreciation is the name for that spreading, and a depreciation schedule is the year-by-year answer to the only two questions that matter — how much comes off this year, and what is the asset still carried at.

Three numbers set the whole thing up. The cost is what was paid to buy the asset and put it into service. The salvage value is what it is expected to fetch at the end. The useful life is how many years it is written off over. The difference between cost and salvage is the depreciable base, and every method on this page writes off exactly that amount — no more, no less. What the methods argue about is timing.

Timing is worth arguing about because deductions are worth more early. A charge taken in year one reduces this year's taxable income, and money saved now is worth more than the same money saved in year five. That is the entire case for the accelerated methods, and it is why tax codes are written in terms of them while financial statements usually stay on straight line. The TVM calculator will price the difference if you want the present value of the two deduction streams.

The formulas

Three formulas and one switching rule

Everything starts from the depreciable base, which is the only quantity all four methods share.

Straight line divides that base by the life and charges the same amount every year. It is the method you can do in your head, and the one every other method is measured against.

Sum-of-the-years'-digits keeps the same base but weights the years. Add the digits of the life — 5 + 4 + 3 + 2 + 1 = 15 for a five-year asset, or n(n + 1) ÷ 2 in general — and give each year a slice whose numerator is the life still remaining at the start of it.

Declining balance works differently enough to catch people out: it ignores the salvage value while it computes and applies a fixed percentage to whatever book value is left. The percentage is the straight-line rate multiplied by the factor, so 200% declining balance on a five-year life is 40% a year.

Two guardrails then apply, and they are the reason a declining-balance schedule never looks quite like the raw formula. The charge is never allowed to take the book value below the salvage value, and the final year absorbs whatever is left above it. On 50,000 falling to 5,000 at 40% a year, the formula produces 20,000, 12,000, 7,200 and 4,320 — and then wants 2,592 in year five when only 1,480 remains, so 1,480 is what gets charged.

DBX adds the switching rule. Each year it compares the declining-balance charge against writing the remaining depreciable value off in a straight line over the years left, and takes the larger. Once it switches it stays switched. With a 2,000 salvage value on that same asset, the comparison finally tips in year four — 4,400 on the straight-line route against 4,320 on declining balance — and years four and five both charge 4,400.

1. The base is fixed before anything else happens

   Cost less salvage. If salvage is at or above cost there is nothing to depreciate, and the worksheet has nothing to report.

2. The method decides how the base is sliced

   Equally under SL, in descending fractions under SYD, or as a fixed percentage of a shrinking balance under DB and DBX.

3. The salvage floor trims anything that overshoots

   No charge may take the book value below SAL, which is what makes the last row of a declining-balance schedule look irregular.

4. M01 prorates the first year and pushes a tail onto the end

   A part-year start splits every full year across two calendar years, so a five-year life is reported over six rows.

The four methods

What each method does to year one

The clearest way to see the difference is to run one asset four ways. A 50,000 machine with a 5,000 salvage value and a five-year life has a depreciable base of 45,000 under every method. Here is how each one distributes it.

Read down the first column and the appeal of the accelerated methods is obvious. SYD takes 15,000 in year one against straight line's 9,000 — a third of the base rather than a fifth. Declining balance takes 20,000, which is 40% of the cost and 44.444% of the base, because it is working from the cost rather than from the base. By the end of year three, straight line has written off 60% of the base, SYD 80% and declining balance 87.111%.

Read across the last row and you can see the price. Declining balance charges 1,480 in the final year, barely a sixth of what straight line charges, because there is almost nothing left to write off. Accelerated depreciation does not create deductions; it moves them forward, and the later years pay for the earlier ones.

DBX is absent from that table for a reason: at a 5,000 salvage value it never switches, so its schedule is identical to DB's. Drop the salvage value to 2,000 and the switch appears in year four, which charges 4,400 against declining balance's 4,320 — and gives the 80 straight back in year five, because the total is 48,000 either way. Like every other choice here, the switch buys timing rather than deductions. DBX can never charge less than DB in the year it switches, which is the whole point of it.

The comparison chart above the fold plots all four book-value curves at once for whatever numbers you have entered, which is usually a faster way to see the effect than reading a column of figures.

On the hardware

Six fields to fill, three to read

2ND DEPR opens the worksheet on METH, and the arrow keys walk down through the rest of it. The order never changes: METH, LIF, M01, YR, CST, SAL, then the three computed fields DEP, RBV and RDV. Nine stops in total — six you set, three you only read.

1. METH — the method, set rather than typed

   2ND SET cycles through the methods; nothing you key here will do anything. When DB or DBX is showing, the display offers the declining-balance percentage as well, and that field does take a number — 200 for double declining, 150 for the other common setting. The emulator on this site holds the percentage at 200, so use the factor box above the fold for anything else.

2. LIF and M01 — the life and the starting month

   LIF is the useful life in years. M01 is the month service starts, 1 through 12; leaving it at 1 gives a full first year, and this page works in whole months.

3. YR — which year you are asking about

   The worksheet reports one year at a time. YR is the row you want, and it is the field you come back to: enter 1, read the three results, return to YR, enter 2, read them again.

4. CST and SAL — both positive

   Unlike the TVM keys, DEPR has no sign convention. The cost is a positive number and so is the salvage value; a negative CST is a data-entry slip, not a cash outflow.

5. DEP, RBV, RDV — computed, so scroll rather than type

   DEP is the charge for year YR, RBV the book value left at the end of it, RDV the amount still to be written off. They update as soon as any input above them changes.

2ND CLR WORK resets the worksheet to its defaults, which matters more here than elsewhere: a stale LIF or M01 from the last question will quietly reshape the schedule while the numbers still look plausible. The keystroke panel above the fold writes out the whole sequence for whatever you have entered, including the SET presses needed to reach your method.

Worked example

A 50,000 truck, 5,000 salvage, five years

Take the defaults on this page and run them by hand. The base is 50,000 − 5,000 = 45,000. On straight line that is 9,000 a year, and every field follows from it: at the end of year one the accumulated depreciation is 9,000, so RBV is 41,000 and RDV — what is still to write off — is 36,000. At the end of year five RBV is exactly 5,000, RDV is zero, and the schedule is done.

Now switch METH to SYD. The digits add to 15, so year one takes 5/15 of the base: 15,000. Year two takes 4/15, or 12,000. Year three takes 3/15, which is 9,000 — the one year where SYD and straight line agree, because the middle year of an odd-numbered life always does. RBV at the end of year three is 50,000 − 36,000 = 14,000 against straight line's 23,000, and that 9,000 gap is the deduction SYD has pulled forward.

Switch to DB and the rate becomes 200 ÷ 100 ÷ 5 = 40%, applied to book value rather than to the base. Year one is 40% of 50,000 = 20,000. Year two is 40% of the remaining 30,000 = 12,000. Year three is 7,200, year four 4,320 — and then the formula asks for 2,592 in year five when the book value is only 6,480 and the floor is 5,000. It gets 1,480 instead. Try DBX on these numbers and nothing changes, because a 5,000 salvage value keeps declining balance ahead of straight line for the whole life.

Finally set M01 to 7. The truck goes into service in July, so year one gets six of twelve months: straight line charges 4,500 rather than 9,000. Every subsequent full year is split across two calendar years, and the leftover half-year lands in a sixth row that charges the closing 4,500. The total is still 45,000 — the schedule is simply one row longer, which is the detail that makes a hand-checked answer disagree with the calculator most often.

Troubleshooting

Six ways a depreciation schedule goes wrong

1. Salvage was subtracted before a declining-balance rate

   The most common error on the accelerated methods. DB applies its rate to the book value, starting at the full cost — 40% of 50,000, not 40% of 45,000. Salvage only appears as the floor the schedule stops at. Subtract it first and every year comes out low.

2. The declining-balance percentage was read as the annual rate

   200 does not mean 200% a year. It means twice the straight-line rate, so on a five-year life it is 40% and on a ten-year life 20%. The factor is divided by the life before it touches anything.

3. M01 was left at a stale value

   A leftover 7 from the previous question halves the first year and adds a row to the end, which looks like a plausible schedule rather than an error. Check the row count: a full first year gives exactly LIF rows.

4. YR is past the end of the schedule

   The worksheet reports zero rather than complaining, and a zero is easy to copy down as an answer. This page tells you how many years the schedule runs and refuses a YR beyond it.

5. A fractional life was entered

   The methods are defined on whole years, so 5.5 is rounded to 6 before anything is computed. If an asset genuinely runs for five and a half years, use M01 to place the part year rather than putting the fraction into LIF.

6. The book value does not land on the salvage value

   If a hand calculation leaves the asset above SAL at the end, the final-year clean-up was missed. Declining balance always charges whatever is still above the floor in the last year, however far that is from the formula amount.

Where to go next

Related worksheets and pages

• The BA II Plus emulator — press 2ND DEPR and walk the worksheet yourself, one field at a time, with the display showing exactly what the hardware would.
• TVM calculator — put a present value on the deductions each method produces, which is the only way to say what accelerating them is actually worth.
• NPV calculator — depreciation is a non-cash charge, so a capital-budgeting model needs the tax shield rather than the charge itself. This is where that goes.
• Amortization calculator — the other schedule worksheet. AMORT splits a payment into interest and principal the way DEPR splits a cost across years.
• IRR calculator — for the return on the asset itself once the tax effects of the schedule are in the cash flows.
• Interest conversion — the discount rate you use on those cash flows has to be the effective one; ICONV is where nominal quotes become effective rates.

Keep going

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Same engine, same sign convention — pick the worksheet that matches your problem.