Depreciation Methods: Straight-Line, Declining Balance and SYD
Compare straight-line, double-declining balance, 150% declining balance and sum-of-the-years' digits depreciation with a worked example.
Published
Free tool: Depreciation CalculatorDepreciation spreads the cost of an asset, such as a machine, vehicle or computer, over the years it's used, instead of expensing it all at once. Different methods spread the cost differently: evenly, or more in the early years. This guide compares the four common methods with one example, using the free Depreciation Calculator.
The inputs
- Asset cost: what you paid, including delivery and setup.
- Salvage value: what you expect it to be worth at the end of its life.
- Useful life: how many years you'll use it.
The amount to depreciate is cost − salvage. Example: a $10,000 machine with a $1,000 salvage value and a 5-year life has $9,000 to depreciate.
Straight-line
The same expense every year: ($10,000 − $1,000) ÷ 5 = $1,800 a year. It's the simplest and most common method for financial statements.
Double-declining balance
Each year's expense is a fixed percentage of the remaining book value: twice the straight-line rate, so 2 ÷ 5 = 40%. That front-loads the expense:
| Year | Expense | Book value |
|---|---|---|
| 1 | $4,000 | $6,000 |
| 2 | $2,400 | $3,600 |
| 3 | $1,440 | $2,160 |
| 4 | $864 | $1,296 |
| 5 | $296 | $1,000 |
The method never depreciates below the salvage value; the calculator switches to straight-line once that gives the larger expense, so the asset ends exactly at its salvage value.
150% declining balance
The same idea at 1.5 times the straight-line rate (30% here): $3,000 in year 1, $2,100 in year 2, $1,470 in year 3, then $1,215 in each of the last two years after switching to straight-line.
Sum-of-the-years' digits
Add up the years (1 + 2 + 3 + 4 + 5 = 15) and depreciate 5/15 of the base in year 1, 4/15 in year 2, and so on: $3,000, $2,400, $1,800, $1,200 and $600. It's accelerated, but less steep than double-declining at first.
Which method should you use?
- Straight-line suits assets that wear out evenly, such as buildings and furniture.
- Accelerated methods suit assets that lose value or usefulness fastest when new, such as vehicles and technology, and they lower reported profit (and taxable profit, where allowed) earlier.
For US tax returns, most business property uses MACRS, with its own recovery periods and tables, and many assets can be expensed immediately under Section 179 or bonus depreciation. This calculator shows book depreciation methods; check tax rules with an accountant.
How to use the Depreciation Calculator
- Open the Depreciation Calculator.
- Enter the asset cost, the salvage value and the useful life.
- Choose the method to show in the schedule.
- Read the results: the first-year depreciation under your method and each alternative, with a chart of book value by method, a chart of the yearly expense and a full schedule.
Frequently asked questions
How do I calculate straight-line depreciation?
Subtract the salvage value from the cost and divide by the useful life. ($10,000 − $1,000) ÷ 5 = $1,800 a year.
What is double-declining balance depreciation?
An accelerated method that charges twice the straight-line rate on the remaining book value each year: 40% a year for a 5-year asset, starting with $4,000 on a $10,000 machine.
Does depreciation affect cash flow?
Not directly: it's an accounting expense, not a payment. But by lowering taxable profit it can reduce the taxes you pay.