Calculate an asset's annual depreciation and book value using either the straight-line or declining balance method.
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Straight-line depreciation spreads the depreciable amount (cost minus salvage value) evenly across the useful life: Annual Depreciation = (Cost − Salvage Value) ÷ Useful Life. Double-declining balance instead depreciates a fixed percentage (double the straight-line rate) of the remaining book value each year, front-loading more depreciation into earlier years.
For example, a 50,000 asset with a 5,000 salvage value over 5 years depreciates 9,000 per year under straight-line, but 20,000 in year 1 alone under double-declining balance (40% of the full 50,000 cost).
Straight-line is the simplest and most common for financial reporting. Declining balance methods are sometimes used for tax purposes or for assets that lose value faster early on (like vehicles or technology). Check with an accountant for the method required in your specific situation.
Salvage value (also called residual value) is the estimated value of the asset at the end of its useful life, what you could sell it for or what it's worth as scrap. It reduces the total amount that gets depreciated.
Declining balance depreciation is a different, shrinking amount each year, since it's a fixed percentage of the remaining book value. The first-year figure gives you the starting point; each subsequent year would need to be recalculated on the reduced book value.
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