function calculateDepreciationRate() {
var assetCost = parseFloat(document.getElementById('dprAssetCost').value);
var salvageValue = parseFloat(document.getElementById('dprSalvageValue').value);
var usefulLife = parseFloat(document.getElementById('dprUsefulLife').value);
var resultsDiv = document.getElementById('dprResults');
// Validation
if (isNaN(assetCost) || isNaN(salvageValue) || isNaN(usefulLife)) {
alert("Please enter valid numeric values for all fields.");
resultsDiv.style.display = 'none';
return;
}
if (usefulLife = assetCost) {
alert("Salvage Value cannot be greater than or equal to Asset Cost.");
resultsDiv.style.display = 'none';
return;
}
// Calculations
// 1. Straight Line Rate Percentage
// Formula: (1 / Useful Life) * 100
var slRate = (1 / usefulLife) * 100;
// 2. Double Declining Balance Rate Percentage
// Formula: (2 / Useful Life) * 100
var ddbRate = (2 / usefulLife) * 100;
// 3. Depreciable Base
var depreciableBase = assetCost – salvageValue;
// 4. Annual Expense (Straight Line)
var annualExpense = depreciableBase / usefulLife;
// Display Results
document.getElementById('resSlRate').innerText = slRate.toFixed(2) + "% per year";
document.getElementById('resDdbRate').innerText = ddbRate.toFixed(2) + "% per year";
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
document.getElementById('resAnnualExpense').innerText = formatter.format(annualExpense);
document.getElementById('resTotalDep').innerText = formatter.format(depreciableBase);
resultsDiv.style.display = 'block';
}
Understanding Depreciation Rate Percentage
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. The Depreciation Rate Percentage is a crucial metric for accountants, business owners, and asset managers to understand how quickly an asset loses its book value annually.
How to Calculate Depreciation Rate
There are two primary methods used to determine the depreciation rate percentage, depending on whether you want to expense the asset evenly or accelerate the expense in the early years.
1. Straight Line Depreciation Rate
This is the most common method. It assumes the asset is used evenly over its life. The percentage rate is constant and is calculated based solely on the useful life of the asset.
Formula: Rate = (1 ÷ Useful Life) × 100
Example: For a machine with a 5-year life, the rate is (1 ÷ 5) × 100 = 20% per year.
2. Double Declining Balance Rate
This is an accelerated method often used for assets that lose value quickly, such as technology or vehicles. It depreciates the asset twice as fast as the straight-line method.
Formula: Rate = (2 ÷ Useful Life) × 100
Example: For the same 5-year machine, the rate is (2 ÷ 5) × 100 = 40% per year.
Key Definitions
Asset Initial Cost: The total purchase price of the asset, including installation and taxes.
Salvage Value: Also known as residual value, this is the estimated resale value of the asset at the end of its useful life.
Useful Life: The estimated number of years the asset will be productive for the business.
Depreciable Base: The Cost minus the Salvage Value. This is the total amount that will be depreciated over time.
Why is the Rate Important?
Knowing your depreciation rate percentage helps in forecasting cash flows and tax liabilities. A higher rate means higher expenses on the income statement in the short term, which reduces taxable income, but it also lowers the book value of the asset more rapidly.