About the Depreciation Calculator
Our free Depreciation Calculator helps businesses, accountants, and asset managers compute asset wear and tear over time using standard accounting methods. Whether you are preparing financial statements or assessing fixed asset values, this tool generates a complete year-by-year schedule table.
1. Depreciation Mathematical Formulas
Fixed asset depreciation expenses and book values are computed using Straight-Line (SLM) and Written-Down Value (WDV) accounting equations:
Straight-Line Annual Depreciation = (Original Asset Cost − Salvage Value) / Useful Life in Years
Written-Down Value (WDV) Depreciation = Opening Book Value × (WDV Rate Percentage / 100)
Closing Book Value = Opening Book Value − Depreciation Expense
Where the defined variables are:
- Original Asset Cost: Initial purchase price or capital cost of the asset.
- Salvage / Scrap Value: Estimated residual value of the asset at the end of its useful life.
- Useful Life: Expected operational lifespan of the asset expressed in years.
- WDV Rate Percentage: Constant annual percentage applied to reducing book values under the declining balance method.
2. Practical Worked Example
Let us review a standard depreciation calculation scenario under the Straight-Line Method:
- Original Asset Cost: ₹1,00,000 (₹1 Lakh)
- Salvage Value: ₹10,000
- Useful Life: 5 years
- Depreciation Method: Straight-Line Method (SLM)
Calculation Breakdown:
- Total Depreciable Amount = ₹1,00,000 − ₹10,000 = ₹90,000
- Annual Depreciation Expense = ₹90,000 / 5 years = ₹18,000 per year
- Year 1 Closing Book Value = ₹1,00,000 − ₹18,000 = ₹82,000 (Accumulated Depreciation = ₹18,000)
Tracking fixed asset depreciation year-by-year ensures accurate balance sheet reporting and tax compliance!
3. Frequently Asked Questions (FAQs)
1. What is salvage value in asset depreciation?
Salvage value (or scrap value) is the estimated book value of an asset after depreciation is complete, representing what the business expects to recover when disposing of it.
2. Which depreciation method is better for tax purposes?
Many accounting standards and tax laws permit WDV (written-down value) methods because they front-load depreciation expenses, reducing taxable income in the initial years of asset ownership.
3. Can accumulated depreciation exceed the depreciable amount?
No. Total accumulated depreciation across the asset's lifespan cannot exceed the total depreciable amount (Original Cost minus Salvage Value).
4. What is the main difference between SLM and WDV methods?
Straight-Line Method (SLM) deducts an equal depreciation amount every year, whereas Written-Down Value (WDV) applies a fixed percentage to the reducing balance each year, resulting in declining expense charges.
5. How does depreciation affect business balance sheets?
Depreciation reduces the net book value of fixed assets on the balance sheet while simultaneously recording a non-cash depreciation expense on the income statement.
6. Can land be depreciated as a fixed asset?
No, land is generally considered to have an indefinite useful life and is not subject to depreciation under standard accounting rules.
7. What happens when an asset is fully depreciated?
Once fully depreciated, the asset remains on the company's books at its salvage or scrap value until it is sold, scrapped, or retired from active use.
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