Straight Line Depreciation Calculator

What this depreciation calculator does

You buy a machine for fifty thousand. It will last five years and be worth about five thousand at the end. Charging the whole fifty thousand against this year's profit would be misleading, because you will be using it for another four years, so accounting spreads the cost across the years that benefit from it.

Straight line is the simplest way of doing that: the same amount every year, from purchase to disposal.

Give this calculator the asset's cost, what you expect it to be worth at the end, and how many years you will use it. It returns the depreciable base and the annual charge.

It does not currently print the year by year table, which is what most people actually want, so the section below shows how to build it. It is three columns and you can do it on the back of an envelope.

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How to use it

1. Asset Value. What the asset cost. Include everything needed to get it working: purchase price, delivery, installation, non-recoverable taxes. Those all form part of the cost rather than being expensed separately.
2. Final Value. The salvage or residual value, meaning what you expect to sell it for at the end of its useful life. Enter 0 if you expect it to be worthless.
3. Depreciation Period. Useful life in whole years. This is how long you expect to use it, which may be shorter than how long it could physically last.

Press Calculate. Press Reset to clear it.

The final value has to be lower than the asset value, sensibly enough. Enter it the other way round and the tool tells you no depreciation occurs, which is correct: an asset expected to be worth more later is not depreciating.

No currency is assumed, so the arithmetic works in whatever you are accounting in.

The formula

Two steps. First the amount you are spreading:

Depreciable base = cost − salvage value

Then the annual charge:

Annual depreciation = depreciable base ÷ useful life

The salvage value being subtracted is the part people forget. You are not writing off the whole cost, only the part you expect to consume. If a van costs 40,000 and will sell for 8,000 in five years, you have used up 32,000 of value, not 40,000.

There is a third figure worth knowing that falls straight out of the same numbers, the depreciation rate:

Rate = 1 ÷ useful life × 100

A five year life is 20 percent a year, a ten year life is 10 percent. Useful when comparing policies between companies, because the rate is comparable in a way the amount is not.

A worked example

A machine costing 50,000, expected to be worth 5,000 after five years.

Depreciable base: 50,000 − 5,000 = 45,000

Annual depreciation: 45,000 ÷ 5 = 9,000

Rate: 20 percent a year

So the income statement carries a 9,000 expense every year for five years, and the balance sheet carries the machine at a book value that falls by 9,000 each year.

Worth being clear that no money moves. Depreciation is a non-cash charge; the cash left when you bought the thing. What it does is match the cost against the years that benefit, which is the whole point of accrual accounting. This is also why cash flow statements add depreciation back to profit when working out cash generated: it was deducted to get profit, and it never left the bank.

The full schedule, year by year

The tool gives you the annual figure. Here is what to do with it, using the same example:

Three things to notice.

Book value ends exactly on salvage. That is the arithmetic working: total depreciation equals the base, so what remains is what you said the asset would be worth. If your schedule does not land on the salvage figure, something is wrong.

Accumulated depreciation is a running total, and on a balance sheet it sits as a contra account against the asset rather than reducing the original cost directly. So the accounts show the machine at 50,000 with 27,000 of accumulated depreciation against it, rather than showing 23,000. Both give the same net figure and the first tells you more.

Depreciation stops at salvage. If you keep using the machine into year six, you charge nothing further. It is fully depreciated, still on the books at 5,000, and still working. This is common and it flatters return ratios, since the asset base looks small while still producing.

Why the first and final year figures are the same

The tool reports a first year expense and a final year expense, and under straight line they are always identical. That looks like a redundancy and it is actually the point being made.

Straight line is defined by that equality. Every other depreciation method produces a different figure in the first year from the last, and the shape of that difference is what distinguishes them. Showing both makes it explicit that this method has no front loading and no tail.

One real world caveat. In practice the first and last years often are different, because assets are rarely bought on the first day of a financial year. If you buy a machine in month seven, you charge six twelfths of a year's depreciation in year one and the remainder rolls into an extra part year at the end. Some businesses do exactly that pro rata calculation, others apply a convention such as a half year in the year of purchase, and tax rules frequently mandate a specific convention regardless of the actual date.

This calculator assumes full years throughout. For a mid-year purchase, work out the full year figure here and then apportion it yourself.

Straight line against an accelerated method

Straight line is not the only option, and the alternative worth knowing is double declining balance, which charges more early and less later.

Same machine, same five years:

Identical totals. The only difference is the order, and the order matters for two reasons.

Reported profit. The accelerated method reduces early profit and raises later profit. A company that has just invested heavily will look considerably less profitable under it, which is a presentational consequence rather than an economic one.

Which pattern is truer. The accounting principle is that depreciation should follow the pattern in which the asset's benefits are consumed. For something that loses value fast and needs more maintenance as it ages, a vehicle or a computer, accelerated genuinely describes reality better. For a building or a piece of furniture that wears evenly, straight line does.

Straight line dominates in practice because it is simple, predictable, and hard to argue with. It is also the easiest to compare between companies, which is worth something on its own.

Your accounts and your tax return use different numbers

This surprises people who assume one depreciation figure serves both purposes. It usually does not.

For your accounts, you choose a method and a useful life that reflect how the asset will actually be used, and you apply it consistently. Under both the international and US accounting frameworks, the requirement is that the method matches the pattern of consumption, and the estimates get reviewed periodically.

For your tax return, the tax authority tells you what to do. In the United States, most business assets are depreciated under MACRS, the modified accelerated cost recovery system, which assigns each asset class a prescribed recovery period and method, applies a mandated convention for the year of purchase, and generally ignores salvage value entirely, depreciating the full cost to zero.

So the same machine can carry a 9,000 charge in the accounts and a completely different figure on the tax return in the same year. That is not an error, it is how the two systems are designed, and the gap between them is what produces deferred tax in a set of accounts.

Other jurisdictions handle it differently again. The United Kingdom disallows accounting depreciation for tax entirely and substitutes capital allowances at prescribed rates.

The practical instruction: use this calculator for your accounts and for understanding the economics. For the tax return, use the prescribed method for your jurisdiction and asset class, or ask whoever prepares it.

Questions people ask

How do I calculate straight line depreciation?

Subtract salvage value from cost to get the depreciable base, then divide by useful life. A 50,000 machine with 5,000 salvage over 5 years depreciates 9,000 a year.

What if there is no salvage value?

Enter 0 and the full cost is depreciated. Plenty of assets genuinely end up worthless, and tax systems often assume zero regardless of what you expect.

How do I decide the useful life?

How long you expect to use it, not how long it could last. Your own history with similar assets is the best guide. For tax, the authority prescribes it.

Where is the year by year table?

The tool gives the annual figure rather than the schedule. Build it by subtracting that amount from book value each year, as shown above. It should land exactly on your salvage value.

What if I bought the asset partway through the year?

Apportion the first year. Six months of use is half the annual charge, and the remainder rolls into a part year at the end. Tax rules may mandate a specific convention instead.

Does depreciation cost me money?

Not in cash. The money left when you bought the asset. Depreciation spreads that past outflow across the years it benefits, which is why cash flow statements add it back to profit.

What happens when an asset is fully depreciated but still in use?

You stop charging depreciation. It stays on the books at salvage value and keeps working, which quietly improves your return on assets.

Can I depreciate land?

No. Land is not considered to have a finite useful life, so it is not depreciated. Buildings on it are.

References

A note on sourcing. The straight line method and the principle that depreciation should follow the pattern in which an asset's economic benefits are consumed come from the accounting standards, IAS 16 internationally and the equivalent United States guidance. Tax depreciation is a separate system with its own prescribed methods, recovery periods and conventions, set out for the United States in IRS Publication 946.

1. Internal Revenue Service, Publication 946, How To Depreciate Property. https://www.irs.gov/publications/p946
2. International Accounting Standards Board, IAS 16, Property, Plant and Equipment.
3. OpenStax, Principles of Finance, Section 7.2, Time Value of Money Basics. https://openstax.org/books/principles-finance/pages/7-2-time-value-of-money-tvm-basics