Tools
Depreciation schedule calculator: straight line and reducing balance
Enter what the asset cost, what it will be worth at the end and how many years it will last. Pick straight line or reducing balance and read the schedule year by year.
In short
This free depreciation calculator from SimpleERP builds a year-by-year schedule by straight line or reducing balance, in any currency. It shows yearly figures; SimpleERP's asset register posts the same methods as monthly, pro-rated schedules.
How to use it
Four inputs give you the whole schedule, from the first year to the last.
Enter the cost
What the asset cost to buy and put to use, before any tax you can reclaim.
Enter the residual value and useful life
What you expect to sell it for at the end, and how many years you will use it. Your accounting policy usually sets the life for each kind of asset.
Pick straight line or reducing balance
For reducing balance, enter a rate or leave it blank to derive it from cost, residual value and life.
Read the schedule
Opening value, depreciation and closing value for each year. The asset never goes below its residual value.
In India, companies follow the useful lives in Schedule II of the Companies Act: use the depreciation calculator (India), which lists them.
Straight line or reducing balance: which should a small business use?
Both are allowed under IFRS and most national standards. Straight line charges the same amount every year and is simple to explain. Reducing balance, also called declining balance, charges more in the early years, which suits assets that lose value fast, such as vehicles and computers. Whichever you choose, apply it consistently and write it in your accounting policy.
- Straight line suits buildings, furniture and machines that wear evenly.
- Reducing balance suits vehicles, computers and anything that dates quickly.
- Tax depreciation is separate. Tax rules set their own allowances, such as capital allowances in the UK or MACRS in the US, so your books and your tax return will show different figures.
- Changing the method later is a change in accounting estimate; talk to your accountant first.
Illustration of a fixed asset card with a monthly straight-line depreciation schedule.
How do I pick a useful life?
The useful life is how long you expect to use the asset, not how long it could last. IAS 16 leaves it to the business, so most set a life per category in their accounting policy and review it each year.
- Typical policies: computers 3 to 5 years, vehicles 4 to 8, furniture 7 to 10, machinery 10 to 15, buildings 25 to 50.
- The residual value is what you expect to get at the end, after selling costs. Many small businesses use zero.
- Low-value items are often written off in the year of purchase under the business's own threshold.
Do this automatically in SimpleERP
SimpleERP keeps a fixed asset register and posts depreciation to the books every month in one click, by straight line over months or declining balance at an annual rate.
- Categories set the default life, such as 120 months for furniture, changeable per asset.
- The first month is pro-rated by days in service.
- Assets stop at their residual value and show as fully depreciated.
- Sell or scrap an asset and the gain or loss books itself.
Illustration of a fixed asset card with a monthly straight-line depreciation schedule.
The maths
How it is calculated
Straight line spreads the depreciable amount evenly; reducing balance takes a fixed percent of what is left each year.
- Straight line per year = (cost − residual value) ÷ useful life in years. The last year takes any rounding, so the asset closes exactly at its residual value.
- Reducing balance per year = opening value × rate ÷ 100. Next year's opening value is this year's closing value.
- Reducing balance rate from life = (1 − (residual value ÷ cost)^(1 ÷ life)) × 100.
- Each year's figure is rounded to two decimals, and no year takes the asset below its residual value.
Example
Worked example
Harbor Supply Co. buys a welding set for $1,200.
| Year | Opening | Depreciation | Closing |
|---|---|---|---|
| 1 | $1,200.00 | $360.00 | $840.00 |
| 2 | $840.00 | $360.00 | $480.00 |
| 3 | $480.00 | $360.00 | $120.00 |
| Year | Opening | Depreciation | Closing |
|---|---|---|---|
| 1 | $1,200.00 | $480.00 | $720.00 |
| 2 | $720.00 | $288.00 | $432.00 |
Honest limits
What this calculator does not do
- It does not apply tax allowances such as capital allowances or MACRS; enter their rate yourself as a reducing balance rate if you want to see them.
- It works in whole years; it does not pro-rate the first year by days or months in use.
- Units of production and sum-of-the-years'-digits methods are not covered.
FAQ
Questions, answered
How do I calculate straight-line depreciation?
Take the cost, subtract the residual value and divide by the useful life in years. A $1,200 welding set with a $120 residual value and a 3-year life depreciates $360 a year.
How do I calculate reducing balance depreciation?
Multiply the opening book value by the rate. At 40% on $1,200 the first year is $480, leaving $720; the second year is 40% of $720, which is $288.
Is accounting depreciation the same as tax depreciation?
Usually not. Your books follow your accounting policy; tax rules set their own allowances and rates. Your accountant reconciles the two in your tax return.
What useful life should I use for computers?
Most small businesses use 3 to 5 years for laptops and desktops and a little longer for servers. Pick one, write it in your accounting policy and use it for every computer.
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