Rather, it takes into account that assets are generally more productive the newer they are and become less productive in their later years. Because of this, the declining balance depreciation method records higher depreciation expense in the beginning years and less depreciation in later years. This method is commonly used by companies with assets that lose their value or become obsolete more quickly. Accountants like the straight line method because it is easy to use, renders fewer errors over the life of the asset, and expenses the same amount everyaccounting period.

Note that the straight depreciation calculations should always start with 1. Try to use common sense when determining the salvage value of an asset, and always be conservative. Don’t overestimate the salvage value of an asset since it will reduce the depreciation expense you can take. Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent. In the last line of the chart, notice that 25% of $3,797 is $949, not the $797 that’s listed.

Free Straight-Line Depreciation Template

Therefore, the second year’s annual depreciation using the double-declining method would be $800, or 20% of $4,000. Dividing the asset’s book value by its useful life will give you the amount that your asset will depreciate each year (or quarter, month, or other time period you’ve chosen Straight Line Depreciation Calculator to use). Depreciation is a deductible business expense, which means that you don’t need to pay taxes on the amount of depreciation an asset accumulates in a particular tax year. It’s important to calculate depreciation to ensure you’re saving as much as possible on your business taxes.

The depreciable base is the difference between an asset’s all-in costs and the estimated salvage value at the end of its useful life. The useful life is represented in terms of years the asset is expected to be of economic benefit. The following calculator is for depreciation calculation in accounting. It takes the straight line, declining balance, or sum of the year’ digits method.

Using a Formula to Calculate Straight-Line Depreciation

Then divide the resulting figure by the total number of years the asset is expected to be useful, referred to as the useful life in accounting jargon. For example, due to rapid technological advancements, a straight line depreciation method may not be suitable for an asset such as a computer. A computer would face larger depreciation expenses in its early useful life and smaller depreciation expenses in the later periods of its useful life, due to the quick obsolescence of older technology. It would be inaccurate to assume a computer would incur the same depreciation expense over its entire useful life. Accountants use the straight line depreciation method because it is the easiest to compute and can be applied to all long-term assets. However, the straight line method does not accurately reflect the difference in usage of an asset and may not be the most appropriate value calculation method for some depreciable assets.

On this page, we discuss the 3 methods of depreciation, how to depreciate an asset, and include a https://kelleysbookkeeping.com/ and a double declining balance depreciation calculator. There are a lot of reasons businesses choose to use the straight line depreciation method. From the amortization table above, we will deduct $30,000 from the current net asset value of $65,000 at the end of year 5 resulting in a $35,000 depreciable cost. Then divide the depreciable cost of $35,000 by the 3 years of useful life remaining. The fixed asset will now have an updated annual depreciation expense of $11,667 for each year of its remaining useful life.