function calculateDepreciation() {
// 1. Get Input Values
var assetCost = parseFloat(document.getElementById('assetCost').value);
var salvageValue = parseFloat(document.getElementById('salvageValue').value);
var usefulLife = parseFloat(document.getElementById('usefulLife').value);
// 2. Validate Inputs
if (isNaN(assetCost) || isNaN(salvageValue) || isNaN(usefulLife)) {
alert("Please enter valid numbers for all fields.");
return;
}
if (usefulLife assetCost) {
alert("Salvage value cannot be higher than the initial asset cost.");
return;
}
// 3. Perform Calculations (Straight Line Method)
// Total amount that can be depreciated over the asset's life
var depreciableBase = assetCost – salvageValue;
// Annual Depreciation Rate (Percentage based on Straight Line)
// Formula: (1 / Useful Life) * 100
var annualRate = (1 / usefulLife) * 100;
// Annual Depreciation Expense ($)
// Formula: (Cost – Salvage) / Useful Life
var annualExpense = depreciableBase / usefulLife;
// Monthly Expense
var monthlyExpense = annualExpense / 12;
// 4. Update the Result Display
var resultDiv = document.getElementById('depreciationResult');
resultDiv.style.display = 'block';
// Format numbers
document.getElementById('resRate').innerHTML = annualRate.toFixed(2) + "%";
// Using Intl.NumberFormat for currency formatting
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
});
document.getElementById('resExpense').innerHTML = formatter.format(annualExpense);
document.getElementById('resTotal').innerHTML = formatter.format(depreciableBase);
document.getElementById('resMonthly').innerHTML = formatter.format(monthlyExpense);
}
How to Calculate Annual Rate of Depreciation
Calculating the annual rate of depreciation is a fundamental accounting task used to allocate the cost of a tangible asset over its useful life. By determining this rate, businesses can accurately report the decrease in value of assets such as machinery, vehicles, and office equipment on their financial statements.
Understanding the Straight-Line Depreciation Method
The most common and straightforward method for calculating depreciation is the Straight-Line Method. This approach assumes that the asset loses value at a constant rate over time. The calculator above utilizes this standard method to provide both the percentage rate and the specific dollar amount to be expensed annually.
Annual Depreciation Rate (%) = (1 / Useful Life in Years) × 100
Asset Initial Cost: The total purchase price of the asset, including taxes, shipping, and installation fees.
Salvage Value (Residual Value): The estimated value of the asset at the end of its useful life. This is the amount you expect to sell it for as scrap or used equipment.
Useful Life: The estimated number of years the asset will remain productive and in service for the business.
Depreciable Base: The total amount of the asset's cost that can be depreciated, calculated as Cost minus Salvage Value.
Example Calculation
Let's look at a realistic example to see how the annual rate of depreciation works in practice:
Imagine a construction company buys a new heavy-duty truck.
Purchase Price: $60,000
Salvage Value: $10,000 (Expected resale value after use)
Useful Life: 5 Years
Step 1: Calculate the Rate
Rate = (1 / 5 years) × 100 = 20% per year.
Step 2: Calculate the Expense
Depreciable Base = $60,000 – $10,000 = $50,000.
Annual Expense = $50,000 / 5 = $10,000 per year.
Why Calculating Depreciation Rates Matters
Accurate depreciation schedules are crucial for tax purposes and cash flow management. Depreciation is a non-cash expense, meaning it reduces reported net income—and therefore tax liability—without requiring an immediate cash outlay. Understanding your annual rate of depreciation helps in forecasting future capital expenditures and maintaining accurate balance sheets.