Depreciation formula

Depreciation Formula

Mathematical calculations used to determine the amount of an asset’s cost to be allocated as expense during each accounting period over its useful life.

For example, the straight-line depreciation formula is: Annual Depreciation Expense = (Cost - Salvage Value) ÷ Useful Life. For a machine costing $50,000 with $5,000 salvage value and 10-year useful life, annual depreciation would be $4,500.

Different depreciation methods use different formulas. The declining balance method uses: Annual Depreciation = Book Value × Depreciation Rate, where the rate is often double the straight-line rate (200% declining balance or “double-declining balance”). Units of production depreciation uses: (Cost - Salvage) × (Units Produced ÷ Estimated Total Units). Each formula distributes the asset’s depreciable amount differently over time, affecting reported expenses and asset carrying values.