Depreciation Calculator: Straight-Line and Double-Declining Explained

When a business buys equipment, a vehicle, or a computer system, the cost is not usually treated as a single expense in the year of purchase. The asset provides value over several years, so its cost is spread across those years through depreciation. That spreading matters for reported profit, for tax in many systems, and for understanding what an asset is still worth on the books. Done carelessly, depreciation produces misleading profit figures and a book value that bears no relation to the asset's remaining usefulness.

The Depreciation Calculator shows the two most common methods side by side in structure, though you choose one at a time. You enter cost, salvage value, and useful life, choose straight-line or double-declining, and it returns the yearly charge and the book value after each year. It is an educational calculation, not tax or accounting advice, because tax rules, allowable methods, and asset lives vary by jurisdiction and by asset type.

How it works

Straight-line depreciation is the simplest method. The depreciable amount is cost minus salvage value, where salvage value is the estimated value at the end of useful life. Divide that amount by the useful life in years to get the annual charge, which is the same every year. Book value starts at cost and falls by the annual charge each year, reaching salvage value exactly at the end of useful life. The method suits assets that provide value evenly over time, such as office furniture or a building fit-out.

Double-declining depreciation is an accelerated method. The rate is twice the straight-line rate: for a five-year life, the straight-line rate is 20 percent per year, so the double-declining rate is 40 percent per year. Each year, the charge is that rate multiplied by the book value at the start of the year, not by the original cost. Because book value falls each year, the charge falls each year too, front-loading the expense into the early years. The method suits assets that lose usefulness quickly, such as technology equipment, though whether it is permitted for tax depends on the jurisdiction.

The double-declining method has a floor: book value must never fall below salvage value. In the final year, the charge is capped so that book value lands exactly on salvage value, even if the formula would otherwise take it lower. That cap is easy to forget and is the most common source of error in hand calculations of this method.

Worked example

Take an asset costing 10,000 dollars, with a salvage value of 1,000 dollars and a useful life of five years. Under straight-line, the depreciable amount is 10,000 minus 1,000, which is 9,000 dollars, and the annual charge is 9,000 divided by 5, which is 1,800 dollars every year. Book value falls from 10,000 to 8,200 after year one, then by 1,800 each year, reaching 1,000 after year five.

Under double-declining, the rate is twice 20 percent, which is 40 percent. Year one charge is 40 percent of 10,000, which is 4,000 dollars, leaving a book value of 6,000 dollars. Year two charge is 40 percent of 6,000, which is 2,400 dollars, leaving 3,600 dollars. Year three charge is 40 percent of 3,600, which is 1,440 dollars, leaving 2,160 dollars. Year four charge is 40 percent of 2,160, which is 864 dollars, leaving 1,296 dollars. Year five would give 40 percent of 1,296, which is 518.40 dollars, but that would leave 777.60 dollars, below the salvage value of 1,000 dollars, so the year five charge is capped at 1,296 minus 1,000, which is 296 dollars, leaving exactly 1,000 dollars. Both methods end at salvage value, but double-declining charges far more in the early years.

  • Straight-line annual charge: (10,000 minus 1,000) divided by 5 equals 1,800 dollars.

  • Double-declining rate: 2 multiplied by (1 divided by 5) equals 40 percent.

  • Double-declining charges: 4,000, then 2,400, then 1,440, then 864, then capped at 296 dollars.

  • Both methods end at the salvage value of 1,000 dollars after five years.

Common mistakes to avoid

The most common mistake is forgetting salvage value and depreciating the full cost, which overstates every year's charge under straight-line and distorts the final book value. A second mistake is applying the double-declining rate to the original cost every year, which is just straight-line at a higher rate and misses the declining-balance logic entirely. A third mistake is letting book value fall below salvage value in the final year, which the cap exists to prevent.

A fourth mistake is confusing book value with market value. Book value is an accounting record of cost allocation, not a valuation. An asset with a book value of 1,000 dollars may sell for far more or far less, depending on condition, demand, and market changes. For cash-flow and investment questions, the Discounted Cash Flow (DCF) Calculator values future cash flows directly, which is a different and complementary exercise.

What it does not do

This calculator gives educational figures, not tax or accounting advice. Tax depreciation rules, capital allowances, allowable methods, asset lives, and treatment of disposals vary by jurisdiction and change over time, and accounting standards impose their own requirements on method choice and review. Salvage value and useful life are estimates, and changing them changes every year's charge, so the outputs are only as good as those estimates.

The calculator also covers only two methods. Other methods, such as units-of-production or sum-of-the-years-digits, suit particular assets and are not modelled here. For any figure that will appear in accounts or a tax return, confirm the method, life, and salvage value with a qualified accountant.

A short practical routine

A practical routine for a small business is to record, for each asset, the cost, the estimated salvage value, the useful life, the chosen method, and the reason for that choice, at the time of purchase. Revisit the estimates only when facts change, such as a decision to keep an asset longer or a change in its expected resale value, and document any change. That record makes year-end accounting straightforward and makes the depreciation figures explainable to an accountant or auditor.

Review the asset register annually: remove disposed assets, check that no book value has fallen below salvage value, and confirm that fully depreciated assets still in use are noted as such. For related financial calculations, the Discounted Cash Flow (DCF) Calculator values investment cash flows, the Dividend Yield Calculator covers income from shares, and the guide on How to Calculate an Average the Right Way helps when averaging charges across assets.

Start with the Depreciation Calculator, value cash flows with the Discounted Cash Flow (DCF) Calculator, and check share income with the Dividend Yield Calculator.