Depreciation is the reduction of the value of an asset over a period of time. This calculator features two of the most popular ways of determining roughly how much something will depreciate on a yearly basis; straight-line and declining balance depreciation.
The Straight Line Depreciation Method
The most popular and simple way of determining depreciation is with the straight-line formula. To calculate this, we subtract the final salvage cost from the asset cost then divide that by the number of years of ownership.
The formula for the straight line can be written like this:
Depreciation per year = (asset cost - salvage value) / years
This is a nice way of giving you an idea of total depreciation but doesn't take into account that newer assets tend to depreciate faster.
Declining Balance Depreciation
Many assets depreciate faster when they are new. In those cases, it is better to use a declining balance formula, which uses a factor to determine the depreciation rate.
For each year, a double declining balance is calculated by multiplying the current asset value by the depreciation rate (factor).
New value = current asset value * depreciation factor