Accounting / asset capitalisation

Asset depreciation

Build a full depreciation schedule under straight-line, double-declining-balance or sum-of-years-digits. The three methods total the same amount over the asset’s life; this engine shows exactly how differently they time it.

MethodStraight lineDepreciable base$77,000Front-loading1.00×

Year-one charge

$11,000

1.00× the straight-line charge

Annual straight line

$11,000

$77,000 over 7 years

Total depreciated

$77,000

Should equal cost less salvage

Book value at end

$8,000

Residual carrying value

Straight line schedule

Annual charge and closing book value for every year of the asset’s life.

7 year life

Straight line schedule
Year	Depreciation	Accumulated	Book value
Year 1	$11,000	$11,000	$74,000
Year 2	$11,000	$22,000	$63,000
Year 3	$11,000	$33,000	$52,000
Year 4	$11,000	$44,000	$41,000
Year 5	$11,000	$55,000	$30,000
Year 6	$11,000	$66,000	$19,000
Year 7	$11,000	$77,000	$8,000

The closing book value lands on the salvage value exactly — no asset is depreciated below its residual.

Annual depreciation by method

The same asset under all three schedules — the total is identical, the timing is not.

Book value decay

Carrying value under each method, converging on salvage at the end of life.

Canonical equations

The exact relationships implemented by this engine.

D = (C − S)/n · equal charge every year

Dₜ = BVₜ₋₁ · 2/n · switch to straight line when larger

Dₜ = (C−S)(n−t+1)/[n(n+1)/2] · accelerated, exact to salvage

BVₜ = C − ΣDᵢ · never below salvage

Show model notation and computationOpen the symbolic form, the variable definitions, and the step-by-step derivation when you need the detail.

A clear path from inputs to results.

Every depreciation method allocates the same total — cost less salvage — across the asset’s life. What differs is timing. This engine builds the schedule under all three common methods side by side, so the front-loading is visible as a number rather than a description.

Step-by-step methodWorked exampleAssumptions explained

How to use

Enter the asset cost, including installation and delivery.

Set the salvage or residual value — the amount recoverable at the end of the life.

Choose the useful life in years.

Pick a method: straight line for even charges, DDB or SYD for accelerated.

Compare the year-one charge against the straight-line equivalent.

Check that the closing book value lands exactly on salvage.

The formula

\text{SL}: D = \frac{C-S}{n}, \qquad \text{DDB}: D_t = \mathrm{BV}_{t-1}\cdot\frac{2}{n}, \qquad \text{SYD}: D_t = (C-S)\frac{n-t+1}{n(n+1)/2}

Reference: IAS 16 (property, plant and equipment) and ASC 360 for financial-reporting depreciation; standard accounting texts for the SL, DDB-with-switch and SYD schedules. These are book methods — IRS Publication 946 MACRS tables use different conventions (half-year, no salvage) and are not implemented here.

Worked example

$85,000 asset, $8,000 salvage, 7-year life (default inputs)

Inputs

Asset cost $85,000.
Salvage value $8,000.
Useful life 7 years.
Method: straight line (default).

Calculation path

1
Depreciable base: 85,000 − 8,000 = $77,000.
2
Straight line: 77,000 / 7 = $11,000 a year for seven years.
3
Double declining: 2/7 of book value each year, switching to straight line when larger — $24,286 in year one.
4
Sum of years: 77,000 × 7/28 = $19,250 in year one, declining by 77,000/28 each year.
5
All three methods total $77,000 by the end of year seven.

Result

Straight line $11,000 a year · DDB year one $24,286 · SYD year one $19,250 · all three total $77,000.

Interpreting the result

DDB charges 2.2 times the straight-line amount in year one and correspondingly less later. For a tax-paying business, that accelerates the tax shield, which has real present value. For reporting, it depresses early profit. The total is identical — only the timing, and therefore the time value, changes.

Assumptions & limitations

Salvage value is known and the asset is not depreciated below it.

DDB switches to straight line over the remaining life once that produces a larger charge, which is standard practice.

A full year of depreciation is taken in year one; mid-year and half-year conventions are not applied.

No impairment, revaluation or change in estimate during the life.

This is book depreciation. Tax depreciation (MACRS, capital allowances) follows statutory tables and usually differs.

Frequently asked questions

Which method should I use?

For financial reporting, match the charge to the pattern of economic benefit — vehicles and computers suit accelerated methods, buildings suit straight line. For tax, use whatever the statute allows, since accelerating the shield is usually worth more.

Is depreciation a cash expense?

No. It is a non-cash allocation that reduces taxable income. The cash left the business when the asset was purchased. This is why free cash flow adds depreciation back.

How does salvage value affect the schedule?

It reduces the depreciable base, so every method charges less per year. Setting salvage to zero maximises the annual charge and is common for assets with no resale value.

Why does DDB switch to straight line?

Pure DDB never reaches salvage because it applies a fixed percentage to a declining balance. Switching to straight line over the remaining life guarantees the book value lands exactly on salvage.

What is the difference between book and tax depreciation?

Book depreciation follows accounting standards and reflects economic use. Tax depreciation follows statutory schedules designed to incentivise investment, often front-loaded. The difference creates deferred tax balances.

Can I change methods mid-life?

Under accounting standards, a change in estimate is applied prospectively: the remaining book value is spread over the remaining life. The schedule is not restated retrospectively.