Depreciation calculator

What is depreciation?

Depreciation is the systematic allocation of an asset’s cost across its useful life. It reflects the assumption that assets lose value over time through use, wear, or obsolescence, and it distributes that cost recognition across the periods that benefit from the asset’s use.

The method chosen determines how much of the cost appears in each period, which affects reported income, tax timing, and book value on the balance sheet. That choice is not purely mechanical: it carries real implications for how aggressively a company recognizes expense and how the asset appears on financial statements over time.

Depreciation formulas

Straight-line: Annual Depreciation = (Cost − Salvage Value) / Useful Life

Double-declining balance: Depreciation = Book Value × (2 / Useful Life)

Sum-of-the-years digits: Depreciation = (Remaining Life / SYD) × (Cost − Salvage Value)

Units of production: Depreciation = ((Cost − Salvage Value) / Total Units) × Units in Period

Where Cost is the original acquisition price, Salvage Value is the estimated residual value at the end of useful life, Useful Life is the total expected service periods, Book Value is the net carrying amount at the start of each period (cost minus accumulated depreciation to date), Remaining Life is the number of service periods still left, and SYD is the sum-of-the-years digits, calculated as n(n+1)/2 where n is total useful life in years. For units of production, Total Units is estimated lifetime output capacity and Units in Period is actual output for that period.

Straight-line spreads cost evenly. The accelerated methods (DDB and SYD) front-load it. Units of production ties expense recognition directly to usage, which makes it most accurate for assets whose wear correlates with output rather than time.

How the depreciation calculator works

The schedule table provides period-by-period detail; the book-value curve shows how sharply each method declines over time. Together they make visible how aggressively a method front-loads depreciation relative to straight-line.

The planning value comes from placing methods side by side on the same asset. When reporting presentation or budgeting cadence creates a preference for one depreciation shape over another, the comparison makes the trade-off explicit rather than implied.

How depreciation is used in accounting and finance

Depreciation choices affect both financial reporting and tax liability. Accelerated methods reduce taxable income earlier in an asset’s life, which can improve near-term cash flow. Straight-line produces smoother expense recognition, which some firms prefer for reporting consistency or EBITDA presentation purposes.

The distinction between book depreciation and tax depreciation is also worth noting: many firms use different methods for each, which creates deferred tax items on the balance sheet. Understanding both is part of reading financial statements accurately.