How to use the depreciation calculator
- Depreciation method - Choose which depreciation method to use. There are two options here: straight line depreciation and sum-of-years-digits depreciation.
- Cost - Original cost of the asset.
- Salvage - The salvage value after the asset has been fully depreciated.
- Life - The number of periods (year here) that depreciates the asset.
What is straight line depreciation
Straight line is the simplest method, it allocates depreciation value evenly on a number of periods. The calculation formula is:
Annual depreciation amount = (Original cost of asset - Salvage value)/number of periods
example: an asset has original cost of $1000, and salvage value of $100 after 3 years.
Annual depreciation amount is (1000-100)/3 = $300.
What is sum-of-years-digits depreciation
The sum-of-years-digits method has a more accerlerated write-off than straight line method.
Example: an asset will be depreciated in 8 years.
Sum of years digits: 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36,
Year 1: 8/36
Year 2: 7/36
Year 3: 6/36
Year 4: 5/36
Year 5: 4/36
Year 6: 3/36
Year 7: 2/36
Year 8: 1/36