Depreciation methods
- Straight-line: equal depreciation every year. Simplest and most common.
(Cost − Salvage) ÷ Life - Declining balance: a fixed % of the book value each year. Front-loads depreciation; useful for assets that lose value faster early on.
- Double-declining balance: declining balance at twice the straight-line rate. Even more aggressive front-loading.
Choosing a method
- Offices, furniture, buildings → straight-line.
- Computers, vehicles, machinery → declining / double-declining.
- Tax rules in many countries prescribe specific methods (e.g., MACRS in the US, Block of Assets in India) — check your jurisdiction for required treatment.
FAQ
Can book value go below salvage value?
No. In declining methods, we stop depreciating once the book value reaches salvage — any remaining life just leaves the asset at salvage value.
Is depreciation a cash expense?
No. It's a non-cash accounting charge that reflects the asset's declining value. It reduces taxable income but doesn't reduce cash.