Depreciation Calculator
Calculate annual depreciation using the straight-line method. Enter asset cost, salvage value, and useful life to find yearly depreciation expense and book value over time.
How to use this tool
- Enter asset cost, salvage value and useful life in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your annual depreciation and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Straight-Line Depreciation: Annual Depreciation = (Cost − Salvage Value) / Useful Life
Depreciation Rate: Rate = Annual Depreciation / Cost × 100
How it works
The straight-line method spreads the depreciable cost of an asset evenly over its useful life. The depreciable base is the original cost minus the estimated residual (salvage) value at the end of useful life. This is the most widely used depreciation method for financial reporting under US GAAP and IFRS.
Worked example
Office Equipment Depreciation
- Asset cost: $50,000; Salvage value: $5,000; Useful life: 10 years
- Depreciable base = $50,000 − $5,000 = $45,000
- Annual depreciation = $45,000 / 10 = $4,500 per year
- Depreciation rate = $4,500 / $50,000 × 100 = 9% per year
Annual depreciation expense is $4,500, with a total depreciation of $45,000 over the asset's life.
Common mistakes to avoid
- Forgetting to subtract salvage value from cost before dividing by useful life, overstating annual depreciation and depreciating the asset below its expected residual value.
- Continuing to depreciate after net book value reaches salvage value -- once book value equals salvage, depreciation stops under the straight-line method.
- Confusing accounting depreciation (financial reporting) with tax depreciation (MACRS in the U.S.), which uses accelerated schedules and yields different expense amounts in early years.
Key terms
- What is salvage value?
- Salvage value (residual value) is the estimated amount an asset can be sold for at the end of its useful life. It is subtracted from cost to determine the depreciable base.
- What is useful life?
- Useful life is the estimated period over which an asset is expected to be economically useful to its owner, after which it is retired or replaced.
- Why use straight-line depreciation?
- Straight-line depreciation is simple, predictable, and produces a constant annual expense, making financial planning easier and complying with both GAAP and IFRS accounting standards.
- What is the depreciable base?
- The depreciable base (or depreciable cost) is the portion of an asset's cost that will be expensed over its useful life, calculated as cost minus salvage value.
Frequently asked questions
- What is salvage value and how do I estimate it?
- Salvage value is the estimated amount the asset will be worth at the end of its useful life. For many assets it is set to zero if expected to be scrapped. For vehicles, resale price guides are used; for equipment, dealer estimates apply.
- When should I use straight-line versus accelerated depreciation?
- Straight-line is appropriate when the asset provides roughly equal benefit each year (buildings, furniture). Accelerated methods (double-declining balance) better match assets that lose value quickly early in life (vehicles, technology equipment). Tax rules may mandate a specific method.
- Does depreciation affect cash flow?
- Accounting depreciation is a non-cash expense. However, it reduces taxable income, which reduces taxes paid -- a real cash benefit called the depreciation tax shield. On the cash flow statement, depreciation is added back to operating income.