How to Calculate Depreciation

To calculate depreciation, start with three figures: what the asset cost, what you expect it to be worth at the end (its salvage value), and how long you'll use it, in years or in units of use. Cost minus salvage value is the amount to depreciate. Then pick a method. Straight-line spreads that amount evenly over the years; units-of-production spreads it by how much the asset is used; double-declining-balance takes more in the early years. All three end at the same total.

Billed publishes this page. The methods and definitions are quoted from OpenStax, Principles of Accounting, Volume 1, chapter 11 (Rice University), opened on October 30, 2026. This page covers depreciation in your accounting records; US tax depreciation has its own rules, covered in what is tax depreciation.

The Three Figures You Need

OpenStax's section 11.3 defines the inputs:

• Cost: everything it took to get the asset ready to use. See tangible fixed assets for what goes into it.
• Salvage (residual) value: "the price the asset will sell for or be worth as a trade-in when its useful life expires." OpenStax adds that "the salvage value is estimated based on past experiences with similar assets."
• Useful life: in years for straight-line and double-declining-balance, or in units (miles, hours, pages) for units-of-production.
• Depreciable base: cost minus salvage value. In OpenStax's example, "if we paid $50,000 for an asset and anticipate a salvage value of $10,000, the depreciable base is $40,000."

Land isn't depreciated. Fixed assets vs. current assets and tangible fixed assets cover why.

Straight-Line

OpenStax's chapter 11 key terms define straight-line depreciation as a "depreciation method that evenly splits the depreciable amount across the useful life of the asset".

Yearly depreciation = (cost − salvage value) ÷ useful life in years

Section 11.3 says "Straight-line depreciation is efficient, accounting for assets used consistently over their lifetime".

Units-of-Production

Section 11.3: "The units-of-production depreciation method bases depreciation on the actual usage of the asset, which is more appropriate when an asset's life is a function of usage instead of time."

Rate per unit = (cost − salvage value) ÷ total expected units

Depreciation for the year = units used that year × rate per unit

Double-Declining-Balance

Section 11.3 calls it "the most complex of the three methods because it accounts for both time and usage and takes more expense in the first few years of the asset's life."

Rate = (100% ÷ useful life in years) × 2

Depreciation for the year = book value at the start of the year × rate

Two rules make it work. First, "in the first year, the estimated salvage value is not subtracted from the total asset cost before calculating the first year's depreciation expense." Second, "depreciation expense is not permitted to take the book value below the estimated salvage value". In the final year or years, that can limit the depreciation to what's left above salvage value, as the example below shows.

Worked Example: One Van, Three Methods (sample figures)

The business, van and figures here are a sample, invented for this example. It shows accounting records only, not tax.

A sample catering business buys a delivery van:

• Cost: $40,000
• Salvage value: $4,000
• Useful life: 4 years, or 120,000 miles
• Depreciable base: $40,000 − $4,000 = $36,000

It drives the van 40,000 miles in year 1, 35,000 in year 2, 25,000 in year 3 and 20,000 in year 4, which adds up to 120,000.

Straight-line: $36,000 ÷ 4 = $9,000 a year

• Year 1: $9,000; book value $31,000
• Year 2: $9,000; book value $22,000
• Year 3: $9,000; book value $13,000
• Year 4: $9,000; book value $4,000

Units-of-production: $36,000 ÷ 120,000 miles = $0.30 a mile

• Year 1: 40,000 × $0.30 = $12,000; book value $28,000
• Year 2: 35,000 × $0.30 = $10,500; book value $17,500
• Year 3: 25,000 × $0.30 = $7,500; book value $10,000
• Year 4: 20,000 × $0.30 = $6,000; book value $4,000

Double-declining-balance: (100% ÷ 4) × 2 = 50% of book value a year

• Year 1: $40,000 × 50% = $20,000; book value $20,000 (salvage value isn't subtracted first)
• Year 2: $20,000 × 50% = $10,000; book value $10,000
• Year 3: $10,000 × 50% = $5,000; book value $5,000
• Year 4: $5,000 × 50% would be $2,500, which would take the book value to $2,500, below the $4,000 salvage value. So the depreciation is only $5,000 − $4,000 = $1,000; book value $4,000

Totals: straight-line $9,000 × 4 = $36,000; units-of-production $12,000 + $10,500 + $7,500 + $6,000 = $36,000; double-declining-balance $20,000 + $10,000 + $5,000 + $1,000 = $36,000. That matches what section 11.3 says: "over the depreciable life of the asset, the total depreciation expense taken will be the same, no matter which method the entity chooses."

Choosing a Method and Partial Years

The methods differ in timing, not in total. Double-declining-balance puts more expense in the early years, units-of-production follows how hard the asset works, and straight-line keeps it even. Ask your accountant which method suits your assets and your reporting.

For an asset bought partway through the year, section 11.3 says: "Companies must be consistent in how they record depreciation for assets owned for a partial year. A common method is to allocate depreciation expense based on the number of months the asset is owned in a year."

Each year's depreciation is recorded as an expense, and the total so far builds up in accumulated depreciation. See tangible fixed assets for how that shows on the balance sheet, and the depreciation calculator to work through your own figures.

When This Guide Isn't for You

For your US tax return, depreciation follows its own rules and recovery periods; see what is tax depreciation and ask your accountant. For intangible assets, such as patents, see what is amortization.

Related Guides

• Tangible Fixed Assets
• Fixed Assets vs. Current Assets
• What Is Tax Depreciation?
• What Is Amortization?
• How Retained Earnings Are Calculated

Frequently Asked Questions

What is the formula for straight-line depreciation?

Cost minus salvage value, divided by the useful life in years. In the sample on this page, ($40,000 − $4,000) ÷ 4 gives $9,000 a year.

What is the difference between straight-line and double-declining-balance depreciation?

Straight-line takes the same amount each year. Double-declining-balance applies twice the straight-line rate to the book value at the start of each year, so it takes more in the early years and less later. The total over the asset's life is the same.

Do I subtract salvage value in double-declining-balance?

Not in the first year's calculation, which uses the full cost. But depreciation stops once the book value reaches the salvage value, so the last year can be smaller.

Can land be depreciated?

No. Land isn't depreciated in your accounting records. The fixed assets and tangible fixed assets pages on this site explain why.