How this calculator works
Depreciation allocates the cost of an asset, less its expected salvage value, over the years that use it. Straight line spreads the depreciable base evenly, so the annual charge never changes. Declining balance applies a fixed percentage to the opening book value each year, producing large early charges that shrink over time, which suits vehicles and equipment that lose value fastest when new. Sum-of-years digits also front-loads the charge by weighting earlier years more heavily, using the remaining life as the weight. If an asset is sold or scrapped, stop depreciating and compare the proceeds with the book value to find the gain or loss.
Formula
Straight line: annual expense = (cost - salvage) / life. Book value after t years = cost - annual expense × t. Declining balance: book value after t years = cost × (1 - rate)^t, and the charge in year n = opening book × rate, limited to the remaining depreciable amount. Sum-of-years digits: expense in year n = (cost - salvage) × (life - n + 1) / (life × (life + 1) / 2).
Worked example
A $50,000 machine with a $5,000 salvage value and a 5 year life has a depreciable base of $45,000. Straight line gives $9,000 a year, so after 2 years the book value is $32,000. At 20 per cent declining balance the first year costs $10,000 and the second $8,000, leaving $32,000. Sum-of-years digits charges $15,000 in year 1 and $12,000 in year 2, leaving $23,000.
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Frequently asked questions
Which method should I use?
Straight line is simplest and matches assets that wear evenly, such as buildings. Declining balance or sum-of-years digits suit assets that lose value quickly or need more maintenance later. Tax rules often prescribe a method, so check the local capital cost allowance rules before choosing.
Does depreciation use the salvage value under declining balance?
Classic declining balance ignores salvage when setting the rate and simply stops charging once book value reaches salvage. This calculator caps the annual charge so the book value never falls below the salvage value.
Can book value go below salvage?
Not under a well-specified schedule. The charge is limited so that the asset reaches its salvage value at the end of its life and no further. If you enter more elapsed years than the useful life, the calculator rejects the input.