Enter what the asset cost, what you expect it to be worth at the end of its life, and how many years you will use it. The calculator returns the annual and monthly depreciation charge, the total depreciable amount, and the book value after a given number of years.
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How straight-line depreciation works
Straight-line is the simplest and most widely used method. Subtract the salvage value from the cost to get the depreciable amount, then spread it evenly across the useful life. An asset costing 500,000 with a 50,000 salvage value over five years depreciates 90,000 a year, or 7,500 a month.
- Depreciable amount = cost - salvage value
- Annual charge = depreciable amount / useful life
- Book value = cost - accumulated depreciation
Why it belongs in the books, not a spreadsheet
Depreciation is a real expense that reduces profit without moving cash, which makes it easy to forget and easy to get wrong. Left out, profit is overstated and the balance sheet shows assets at a value nobody would pay. Recorded monthly as a ledger entry, it keeps both statements honest and removes a year-end scramble.
- Post depreciation monthly rather than once at year end
- Keep accumulated depreciation separate from asset cost
- Reconcile the asset register to the ledger each period
When straight-line is the wrong method
Straight-line assumes value is consumed evenly, which is often untrue. Vehicles and computers lose most of their value early, where a reducing-balance method reflects reality better. Machinery whose wear tracks output may suit a units-of-production method. Local tax rules may also mandate specific rates regardless of which method is economically sensible, so confirm with an accountant.
- Reducing balance suits vehicles and IT equipment
- Units of production suits usage-driven machinery
- Tax rules may prescribe rates that override your choice
How to calculate straight-line depreciation
Work out the annual depreciation charge and current book value of a fixed asset.
- Enter the asset cost The full purchase cost including delivery and installation.
- Estimate the salvage value What you expect the asset to be worth at the end of its useful life.
- Set the useful life How many years the asset will be used in the business.
- Enter years elapsed The calculator returns the current book value after that period.
FAQs
What is the straight-line depreciation formula?
Annual depreciation equals the asset cost minus the salvage value, divided by the useful life in years. The same depreciable amount is charged in every year of the asset's life.
What is salvage value?
The amount you expect to recover when the asset is disposed of at the end of its useful life, whether by resale or scrap. It is excluded from the depreciable amount because it is not consumed by the business.
Does depreciation reduce my cash?
No. Depreciation is a non-cash expense: the cash left when you bought the asset. It reduces reported profit and the asset's book value, which is why profit and cash flow can differ substantially.
Should I use straight-line or reducing balance?
Straight-line suits assets that give even service across their life, such as furniture or buildings. Reducing balance better reflects vehicles and computers, which lose most value early. Local tax rules may prescribe the method or the rate, so check with an accountant.
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