Equipment loses value; plan for it
A new laptop, camera, van or machine starts losing value the day you buy it. Depreciation spreads that loss over the years you use the item, which gives a fairer picture of what each year of work really cost, and tells you roughly what the item is worth at any point.
This depreciation calculator offers the two methods most people learn first. Straight line takes the same amount off every year. Double declining balance takes more in the early years and less later, which is closer to how many items actually lose value.
How to use it
- Enter what the item cost, including delivery and setup.
- Enter what you expect it to be worth at the end of its useful life. Use 0 if it will be worthless.
- Enter the useful life in whole years.
- Pick straight line or double declining balance.
- Read the depreciation and the schedule: how much comes off each year and the value left after it.
The two depreciation formulas
straight line, each year = (cost − salvage value) ÷ useful life
double declining balance, each year = value at the start of the year × 2 ÷ useful life
neither method takes the value below the salvage valueStraight line is simple and steady. Double declining balance applies twice the straight line rate to whatever value is left, so the amount shrinks each year. It stops when the value reaches the salvage value, and the last year brings it down to that figure exactly.
Worked example: equipment for 12,000 over 5 years
A small studio buys equipment for $12,000 and expects to sell it for $2,000 after 5 years.
- Amount to spread: $12,000 − $2,000 = $10,000
- Straight line: $10,000 ÷ 5 = $2,000.00 a year
- Value left after year 1: $10,000.00
- Value left after year 3: $6,000.00
With double declining balance, the rate is 2 ÷ 5 = 40%. Year 1 takes $4,800 off, year 2 takes $2,880, year 3 takes $1,728, and year 4 takes only $592, because the value has reached the $2,000 salvage figure. Nothing comes off in year 5.
Which method fits?
| Straight line | Double declining balance | |
|---|---|---|
| Amount each year | The same | High at first, then smaller |
| Good for | Furniture, fit-outs, steady use | Computers, phones, vehicles |
| Value after year 1 (example) | $10,000 | $7,200 |
| Easy to explain | Very | Fairly |
For tax, many countries set their own methods, rates and tables. In the US, most business property is depreciated under the IRS system called MACRS, explained in IRS Publication 946. Use this calculator to plan and understand; use the official rules when you file.
Easy mistakes
- Leaving out setup costs. Delivery, installation and setup are usually part of the cost.
- Setting a salvage value that is too high. Check what similar used items actually sell for.
- Mixing up value and usefulness. A fully depreciated laptop may still work fine; it just has little resale value.
- Using this schedule for a tax return without checking. Tax rules often start mid-year and use set tables.
Frequently asked questions
How do I calculate straight line depreciation?
Take the salvage value from the cost and divide by the useful life in years. Equipment costing 12,000 with a 2,000 salvage value over 5 years depreciates by 10,000 ÷ 5 = 2,000 a year. After 3 years it is worth 6,000 on paper. The calculator shows the whole schedule.
How does double declining balance work?
Each year, multiply the value left at the start of the year by twice the straight line rate. For a 5 year life the rate is 40%, so 12,000 loses 4,800 in year 1, then 40% of 7,200 in year 2, and so on. It never goes below the salvage value.
What is salvage value?
Salvage value, also called residual value, is what you expect an item to be worth when you stop using it, for example what you could sell it for. Depreciation only spreads out the difference between the cost and this figure. If the item will be worthless, enter 0.
Can I use this for my tax return?
Use it to plan and to understand the numbers, then follow your tax authority's rules when you file. Tax depreciation often uses set tables, starting conventions and special allowances that change the yearly figures. In the US, IRS Publication 946 explains the system most businesses use.
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