Depreciation Calculator

How to Calculate Depreciation

This calculator helps you determine the depreciation of an asset using various methods. Understanding depreciation is crucial for accounting and financial planning.

Depreciation Formula and Components

The general formula for depreciation is:

Depreciation = (Initial Value - Salvage Value) / Useful Life

• Initial Value: The original cost of the asset
• Salvage Value: The estimated value of the asset at the end of its useful life
• Useful Life: The number of years the asset is expected to be used

Depreciation Methods

• Straight Line: Equal depreciation each year
• Declining Balance: Accelerated depreciation with a fixed percentage
• Double Declining Balance: Accelerated depreciation with double the straight-line rate
• Sum-of-the-Years' Digits: Accelerated depreciation based on years of useful life

Calculation Steps

Let's use the Straight Line method as an example:

1. Determine the Initial Value, Salvage Value, and Useful Life
2. Calculate the depreciable amount: Initial Value - Salvage Value
3. Divide the depreciable amount by the Useful Life

Example Calculation

Let's calculate the annual depreciation for an asset with:

• Initial Value: $10,000
• Salvage Value: $2,000
• Useful Life: 5 years

Step 1: Depreciable amount = $10,000 - $2,000 = $8,000

Step 2: Annual depreciation = $8,000 / 5 years = $1,600 per year

Visual Representation

Year   |  Asset Value
-------|-------------
  0    |   $10,000
  1    |    $8,400
  2    |    $6,800
  3    |    $5,200
  4    |    $3,600
  5    |    $2,000 (Salvage Value)
        

Interpreting the Results

The results show how the asset's value decreases over time. In this example, the asset depreciates by $1,600 each year until it reaches its salvage value of $2,000 after 5 years.