Depreciation Comparison Calculator

Straight line depreciation is where an asset loses value equally over a period of time. Declining balance depreciation is where an asset loses value by an annual percentage. This calculator allows comparison of both methods, and displays a line chart with the results are shown side by side against the same period of time. There is an option to add the results to a table for comparision.(the table appears the first time you click the button).

Please provide a rating, it takes seconds and helps us to keep this resource free for all to use

Depreciation Comparison: Measuring the cost of assets during their useful life

Everyone owns products and assets that are used on a daily basis, but do you know that these products lose a part of their value every time you use them. Depreciation is an accounting term that is used to calculate the value of used up assets during a particular period of time. It defines the cost or expenses we pay indirectly to use our tangible assets.

The term is mainly used by businesses to write off the cost of assets such as machinery and industrial equipment over a period of time. Companies use depreciation methods to spread the cost of physical assets over a long term instead of only in the year of purchase. Spreading the depreciated cost will help you have a clearer picture of actual profits you have made.

Depreciation value is subtracted from the gross earnings of a business that results in lower taxable income. This is to be noted that depreciation is not allowed for tax in the UK.

How does a depreciation calculator help?

The depreciation comparison calculator is an easy way to find out asset value every year. The calculator created by iCalculator is created to compare the two methods of calculating depreciation:

Straight line calculation

This is the most basic method to calculate the depreciation of an asset. It provides with equal depreciation expense for the entire life cycle of an asset until it is depreciated to its salvage value. Below calculation is used for straight line calculation.

Declining balance calculation

All assets can be measured for depreciation with declining balance calculation, which shows the percentage of the asset value depreciation. It is calculated on the balance asset value that remains each year after depreciation. All assets are more valuable in the initial years before they start losing value by depreciating.

Depreciation amount = the asset value multiplied by the annual percentage

*Balance is the asset value minus the depreciation value

The calculator shows you a detailed chart with both straight line and declining balance calculations for a clear comparison, so it's easier for you to understand.

Things you need to know before doing depreciation calculations

Depreciation calculation is done for all businesses for accounting purposes. The calculation requires a few factors that are listed below.

• Initial value of the asset - exact value will result in more accurate results.
• The date you started using the asset - Exact date is important to determine the exact period.
• The estimated useful life of the asset - Expected life can be estimated considering the past experience or market survey of the companies using similar kinds of machines.
• The final value or resale value of the asset - This can be estimated with some market research.
• Any cost that may occur at the time of disposal of the asset, i.e any transportation cost or advertisement cost for selling the asset eventually.

This is also to be noted that depreciation costs vary according to industries, types and quality of assets and usage that is different in all the companies even if they belong to the same industry.

Other methods used for depreciation calculation

From a business perspective, there are several ways to approach depreciation and it all depends on how you want to manage your financial strategy and illustrate baseline operational profit. The depreciation comparison calculator compares the two most common methods, lets now look at alternate options for depreciation calculation.

Double declining balance (DDB)

This method is applied by doubling the reciprocal value of an asset during its useful life. This is an accelerated method similar to declining balance. This rate remains constant but still decreases as it is always multiplied by the decreased value. DDB can be calculated using this formula:

Units of production method

This method is more useful when the units of production is a bigger factor than the number of years pertaining to the depreciation of an asset. It can be calculated by using the formula given below.

This method requires an estimated number of units it will produce during the useful life

Sum of the year's digits (SYD)

As the name suggests, this method uses the sum of years of expected life of an asset. Here's an example of SYD calculation.

Let's assume that the life expectancy of an asset is 4 years. We will start by adding the years, 1+2+3+4 =10. Each digit is then divided by this sum and it results in the percentage of depreciation each year.

• 4/10 = 40%
• 3/10 = 30%
• 2/10 = 20%
• 1/10 = 10%

Note: Sum of these numbers should add up to 100%

In summary

Depreciation cannot be considered as actual expenses in any company as it does not result in any financial outflow. However, It plays a major role in the calculation of net profits that makes it quite important.

This calculator includes the following algorithms:

the following formula are used within the Depreciation Comparison Calculator to illustrate the effects of different depreciation accounting techniques on the relative value of an asset over a period of time.

Straight Line Depreciation Formula:

Declining Balance Depreciation Formula: