Depreciation Calculator
Calculation Results:
Depreciable Base: $0.00
Annual Depreciation (Year 1): $0.00
Book Value at End of Year 1: $0.00
Please enter valid positive numbers for all fields.
'; return; } if (salvageValue >= assetCost) { document.getElementById('depreciationResult').innerHTML = 'Salvage Value must be less than Asset Cost.
'; return; } if (calculationYear > usefulLife) { document.getElementById('depreciationResult').innerHTML = 'Calculation Year cannot exceed Useful Life.
'; return; } var depreciableBase = assetCost – salvageValue; var annualDepreciation = 0; var bookValueEndOfYear = assetCost; var cumulativeDepreciation = 0; if (depreciationMethod === 'straightLine') { annualDepreciation = depreciableBase / usefulLife; cumulativeDepreciation = annualDepreciation * calculationYear; if (cumulativeDepreciation > depreciableBase) { cumulativeDepreciation = depreciableBase; } bookValueEndOfYear = assetCost – cumulativeDepreciation; if (bookValueEndOfYear depreciableBase) ? (depreciableBase – (annualDepreciation * (calculationYear – 1))) : annualDepreciation; if (annualDepreciation < 0) annualDepreciation = 0; // Ensure depreciation doesn't go negative if already at salvage value } else if (depreciationMethod === 'doubleDecliningBalance') { var ddbRate = (2 / usefulLife); var currentBookValue = assetCost; var prevCumulativeDepreciation = 0; for (var year = 1; year depreciableBase) { depreciationThisYear = depreciableBase – prevCumulativeDepreciation; } if (depreciationThisYear < 0) depreciationThisYear = 0; // Cannot depreciate below salvage value annualDepreciation = depreciationThisYear; cumulativeDepreciation = prevCumulativeDepreciation + annualDepreciation; bookValueEndOfYear = assetCost – cumulativeDepreciation; if (bookValueEndOfYear < salvageValue) { bookValueEndOfYear = salvageValue; annualDepreciation = (assetCost – prevCumulativeDepreciation – salvageValue); // Adjust last year's depreciation if (annualDepreciation depreciableBase) { depreciationForPriorYear = depreciableBase – prevCumulativeDepreciation; } if (depreciationForPriorYear < 0) depreciationForPriorYear = 0; currentBookValue -= depreciationForPriorYear; prevCumulativeDepreciation += depreciationForPriorYear; if (currentBookValue < salvageValue) { currentBookValue = salvageValue; break; // Stop depreciating if salvage value is reached } } } // Final check for book value not going below salvage value if (bookValueEndOfYear < salvageValue) { bookValueEndOfYear = salvageValue; // If book value was adjusted, the depreciation for the current year might need adjustment too // This is a complex edge case for DDB, ensuring it doesn't go below salvage in the *last* year. // For simplicity, we ensure book value is at least salvage, and annual depreciation is non-negative. if (assetCost – (cumulativeDepreciation – annualDepreciation) – salvageValue < annualDepreciation) { annualDepreciation = assetCost – (cumulativeDepreciation – annualDepreciation) – salvageValue; if (annualDepreciation < 0) annualDepreciation = 0; } } } else if (depreciationMethod === 'sumOfTheYearsDigits') { var sumOfYearsDigits = usefulLife * (usefulLife + 1) / 2; var currentDepreciableBase = depreciableBase; var prevCumulativeDepreciation = 0; for (var year = 1; year <= usefulLife; year++) { var remainingLife = usefulLife – year + 1; var depreciationFraction = remainingLife / sumOfYearsDigits; var depreciationThisYear = currentDepreciableBase * depreciationFraction; if (year === calculationYear) { annualDepreciation = depreciationThisYear; cumulativeDepreciation = prevCumulativeDepreciation + annualDepreciation; bookValueEndOfYear = assetCost – cumulativeDepreciation; if (bookValueEndOfYear < salvageValue) { bookValueEndOfYear = salvageValue; annualDepreciation = (assetCost – prevCumulativeDepreciation – salvageValue); if (annualDepreciation < 0) annualDepreciation = 0; } break; } else { prevCumulativeDepreciation += depreciationThisYear; } } } document.getElementById('resultDepreciableBase').innerText = 'Depreciable Base: $' + depreciableBase.toFixed(2); document.getElementById('resultAnnualDepreciation').innerText = 'Annual Depreciation (Year ' + calculationYear + '): $' + annualDepreciation.toFixed(2); document.getElementById('resultBookValue').innerText = 'Book Value at End of Year ' + calculationYear + ': $' + bookValueEndOfYear.toFixed(2); } // Run calculation on page load with default values window.onload = calculateDepreciation;Understanding Depreciation Calculation
Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. Instead of expensing the entire cost of an asset in the year it was purchased, depreciation allows businesses to spread out that cost over the years the asset is expected to generate revenue. This provides a more accurate picture of a company's profitability and asset value over time.
Key Depreciation Terms:
- Asset Cost: The total amount paid for an asset, including purchase price, shipping, installation, and any other costs to get it ready for use.
- Salvage Value: The estimated residual value of an asset at the end of its useful life. This is the amount a company expects to receive when it disposes of the asset.
- Useful Life: The estimated period (in years or units of production) over which an asset is expected to be productive for the company.
- Depreciable Base: The total amount of an asset's cost that can be depreciated. It is calculated as:
Asset Cost - Salvage Value. - Book Value: The asset's value on the company's balance sheet at any given time. It is calculated as:
Asset Cost - Accumulated Depreciation.
Common Depreciation Methods:
1. Straight-Line Depreciation
This is the simplest and most common method. It allocates an equal amount of depreciation expense to each year of the asset's useful life.
Formula:
Annual Depreciation = (Asset Cost - Salvage Value) / Useful Life
Example: An asset costs $100,000, has a salvage value of $10,000, and a useful life of 5 years.
Annual Depreciation = ($100,000 - $10,000) / 5 = $90,000 / 5 = $18,000 per year
Each year, $18,000 would be expensed, and the book value would decrease by $18,000 until it reaches the salvage value of $10,000.
2. Double Declining Balance (DDB) Depreciation
This is an accelerated depreciation method, meaning it expenses a larger amount of depreciation in the early years of an asset's life and less in later years. It does not use the salvage value in its initial calculation but ensures the asset is not depreciated below its salvage value.
Formula:
Depreciation Rate = (1 / Useful Life) * 2
Annual Depreciation = Beginning Book Value * Depreciation Rate
Example: Using the same asset: Cost $100,000, Salvage Value $10,000, Useful Life 5 years.
Depreciation Rate = (1 / 5) * 2 = 0.20 * 2 = 0.40 (or 40%)
- Year 1: Beginning Book Value = $100,000. Depreciation = $100,000 * 0.40 = $40,000. Ending Book Value = $60,000.
- Year 2: Beginning Book Value = $60,000. Depreciation = $60,000 * 0.40 = $24,000. Ending Book Value = $36,000.
- Year 3: Beginning Book Value = $36,000. Depreciation = $36,000 * 0.40 = $14,400. Ending Book Value = $21,600.
- Year 4: Beginning Book Value = $21,600. Depreciation = $21,600 * 0.40 = $8,640. Ending Book Value = $12,960.
- Year 5: Beginning Book Value = $12,960. The remaining depreciable amount to reach salvage value ($10,000) is $2,960. So, Depreciation = $2,960. Ending Book Value = $10,000.
Notice how the depreciation amount decreases each year, and in the final year, it's adjusted so the book value doesn't fall below the salvage value.
3. Sum-of-the-Years' Digits (SYD) Depreciation
Another accelerated method that results in higher depreciation expense in the earlier years of an asset's life. It uses a fraction based on the sum of the asset's useful life years.
Formulas:
Sum of Years' Digits = Useful Life * (Useful Life + 1) / 2
Annual Depreciation = (Depreciable Base) * (Remaining Useful Life / Sum of Years' Digits)
Example: Asset Cost $100,000, Salvage Value $10,000, Useful Life 5 years.
Sum of Years' Digits = 5 * (5 + 1) / 2 = 5 * 6 / 2 = 15
Depreciable Base = $100,000 - $10,000 = $90,000
- Year 1: Remaining Life = 5. Depreciation = $90,000 * (5/15) = $30,000.
- Year 2: Remaining Life = 4. Depreciation = $90,000 * (4/15) = $24,000.
- Year 3: Remaining Life = 3. Depreciation = $90,000 * (3/15) = $18,000.
- Year 4: Remaining Life = 2. Depreciation = $90,000 * (2/15) = $12,000.
- Year 5: Remaining Life = 1. Depreciation = $90,000 * (1/15) = $6,000.
Total depreciation over 5 years = $30,000 + $24,000 + $18,000 + $12,000 + $6,000 = $90,000, which equals the depreciable base. The book value at the end of Year 5 would be $10,000 (salvage value).
Why Choose a Specific Method?
The choice of depreciation method can impact a company's financial statements and tax liability. Straight-line is simple and results in consistent earnings. Accelerated methods like DDB and SYD result in higher depreciation expense (and thus lower taxable income) in earlier years, which can be beneficial for tax purposes, but they also show lower net income in those years. The best method depends on the asset's usage pattern, industry standards, and a company's financial strategy.