Depreciation relates to the reduction in the value of an asset (vehicles, machinery, or equipment) over a period due to various factors including wear and tear, obsolescence, etc. 

The depreciation calculator allows one to choose the various methods of depreciation, which could be the straight-line, declining balance, or sum of the year' digits methods. 

Apart from this, you are required to enter variables such as asset cost, salvage value and depreciation years to calculate the depreciation amount. 

How Does a Depreciation Calculator Work?

A depreciation calculator takes into account variables such as the asset cost, time of purchase, salvage value (estimated worth of asset at the end of its useful life), and depreciation year to estimate the total depreciation.

The various methods of calculating depreciation include the straight-line method, the declining balance method, or the sum of the year’s digits. 

Here’s how you can calculate depreciation on your assets

1. Select the depreciation method
2. Select the asset cost
3. Select the salvage value
4. Select the depreciation year

The depreciation value will be displayed in a short span.

Formula to Calculate Depreciation?

Depreciation can be calculated using several different methods, which include:

Straight-line depreciation method:

Depreciation per year = Asset cost – Salvage value/Useful life

Example:

Let’s say, the total cost of buying a machine in a business was Rs 1,00,000. At the end of its useful life of five years, the asset’s salvage value (scrap value) was Rs 25,000. Then, the depreciation expense would be:

(Rs 1,00,000 – Rs 25,000) / 5 = Rs 15,000
Thus, the machine gets depreciated by Rs 15,000 each year of its useful life.

Declining balance method

Depreciation per year = Current book value X Depreciation rate/100

Example:

Let’s assume that the current book value of a system bought for the company is Rs 10,00,000. It has a 10 year useful life, has a salvage value of Rs 1,00,000, and depreciates at 25% every year.

Sum of the year’s digit depreciation method

Depreciation = (Asset cost – Salvage value) x factor

1st year: factor = n/1+2+3+…n
2nd year: factor = n – 1 /1+2+3+…n

Calculating this manually could be a task and is likelty to not provide  accurate results. A suitable alternative would be to use the Depreciation Calculator.

Benefits of Depreciation Calculator

Some of the benefits of a depreciation calculator include:

• Saves time and effort by automating depreciation calculations.
• Reduces the risk of human error in manual calculations.
• Helps with accurate and reliable depreciation figures for financial reporting or managing business expenses.
• Allows for easy comparison of depreciation expenses under different methods.

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