Please enter valid positive numbers. Original Cost must be higher than Residual Value.
Required Depreciation Rate
0.00%
per annum (reducing balance)
Depreciation Schedule
Year
Opening Value
Depreciation Expense
Closing Value
function calculateDepreciation() {
// 1. Get input values
var costInput = document.getElementById('assetCost');
var residualInput = document.getElementById('residualValue');
var lifeInput = document.getElementById('usefulLife');
var errorDiv = document.getElementById('errorMessage');
var resultDiv = document.getElementById('results-area');
var rateDisplay = document.getElementById('finalRate');
var tableBody = document.querySelector('#scheduleTable tbody');
// 2. Parse values
var cost = parseFloat(costInput.value);
var residual = parseFloat(residualInput.value);
var life = parseFloat(lifeInput.value);
// 3. Reset UI
errorDiv.style.display = 'none';
resultDiv.style.display = 'none';
tableBody.innerHTML = ";
// 4. Validation
if (isNaN(cost) || isNaN(residual) || isNaN(life) || cost <= 0 || life = cost) {
errorDiv.innerHTML = "Residual Value must be less than the Original Asset Cost.";
errorDiv.style.display = 'block';
return;
}
// 5. Calculation Logic
// Formula: Rate = 1 – (Residual / Cost)^(1/Life)
// Note: If Residual is 0, mathematically rate is 100%.
var rateDecimal;
if (residual === 0) {
rateDecimal = 1.0; // 100% depreciation
} else {
var power = 1 / life;
var ratio = residual / cost;
rateDecimal = 1 – Math.pow(ratio, power);
}
var ratePercentage = rateDecimal * 100;
// 6. Display Rate
rateDisplay.innerHTML = ratePercentage.toFixed(2) + '%';
// 7. Generate Schedule
var currentValue = cost;
var totalDepreciation = 0;
for (var i = 1; i <= life; i++) {
var depreciationExpense = currentValue * rateDecimal;
// Adjust last year to hit exact residual value to avoid rounding errors
if (i === life) {
// The logic above mathematically reaches residual, but float precision might drift.
// However, standard reducing balance usually applies the rate strictly.
// For the purpose of showing the math working:
depreciationExpense = currentValue * rateDecimal;
}
var closingValue = currentValue – depreciationExpense;
// Create row
var row = document.createElement('tr');
var yearCell = document.createElement('td');
yearCell.textContent = i;
var openCell = document.createElement('td');
openCell.textContent = formatCurrency(currentValue);
var expCell = document.createElement('td');
expCell.textContent = formatCurrency(depreciationExpense);
var closeCell = document.createElement('td');
closeCell.textContent = formatCurrency(closingValue);
row.appendChild(yearCell);
row.appendChild(openCell);
row.appendChild(expCell);
row.appendChild(closeCell);
tableBody.appendChild(row);
// Update for next loop
currentValue = closingValue;
}
// 8. Show Results
resultDiv.style.display = 'block';
}
function formatCurrency(num) {
return num.toLocaleString('en-US', { style: 'currency', currency: 'USD', minimumFractionDigits: 2 });
}
Understanding the Reducing Balance Method
The reducing balance method (also known as the diminishing balance method or written-down value method) is an accounting technique used to allocate the cost of an asset over its useful life. Unlike the straight-line method, which charges the same amount of depreciation every year, the reducing balance method charges a higher percentage of the cost in the early years of the asset's life.
This calculator helps you determine the precise annual percentage rate required to reduce an asset's value from its original cost to a specific scrap (residual) value over a defined period.
The Formula
To calculate the depreciation rate when you know the cost, the residual value, and the lifespan, we use the following formula:
Rate = ( 1 – ( Scrap Value / Original Cost )(1 / n) ) × 100
Where:
Original Cost: The purchase price of the asset.
Scrap Value: The estimated value of the asset at the end of its useful life.
n: The useful life of the asset in years.
Why Use Reducing Balance?
This method is most appropriate for assets that provide more utility in their early years or lose value quickly. Common examples include:
Computers and Technology: Equipment that becomes obsolete quickly.
Vehicles: Cars and trucks lose a significant portion of their market value in the first few years.
Machinery: Production equipment that requires more maintenance costs as it ages (balancing high depreciation early with high maintenance later).
Example Calculation
Imagine a company purchases a delivery van for $40,000. They expect to use it for 5 years and sell it for $5,000 at the end.
Using the calculator above:
1. Input $40,000 as the Original Asset Cost.
2. Input $5,000 as the Target Residual Value.
3. Input 5 as the Useful Life.
The result is a depreciation rate of approximately 34.02%. This means every year, the book value of the van is reduced by 34.02% of its value at the beginning of that specific year.
Straight Line vs. Reducing Balance
Straight Line Depreciation assumes an asset is used evenly over time. If the $40,000 van was depreciated via straight line to $5,000 over 5 years, the expense would be a flat $7,000 per year.
Reducing Balance produces a variable expense. In the first year, the expense would be much higher ($13,608), offering a larger tax shield initially, but the expense drops significantly by year 5.