This Depreciation Methods Excel template goes over how to calculate the depreciation expense and determine the book value of an asset (PP&E) through four different methods. Depreciation expense is calculated in accounting to allocate the cost of a tangible asset (usually PP&E) over its useful life. It reduces the value of the asset for any usage, wear and tear over the course of its useful life. The four most common depreciation methods are listed below:
1. Straight-Line DepreciationThe straight line depreciation method is the simplest way for determining depreciation cost. The formula for calculating depreciation expense using the straight-line approach is as follows: Depreciation Expense = (Cost – Salvage value) / Useful life
2. Double Declining Balance DepreciationDouble declining balance depreciation method depreciates the asset more in the earlier years compared to the later years of its useful life. The formula below is the double declining balance approach to compute depreciation: Periodic Depreciation Expense = Beginning book value x Rate of depreciation
3. Units of Production DepreciationThe units of production depreciation method depreciates assets based on the total number of hours used or the total number of units produced over its useful life. The formula is as follows: Depreciation Expense = (Number of units produced / Life in a number of units) x (Cost – Salvage value)
4. Sum-of-the-Years-Digits DepreciationSum-of-the-years-digits method is a type of accelerated methods where the depreciation expense is higher in early years and lower in later years. The remaining life of the asset is divided by the sum of the years and multiplied by the depreciating base to calculate the expense, as shown in the following formula: Depreciation Expense = (Remaining life / Sum of the year's digits) x (Cost – Salvage value) Depreciation Expense is used in accounting to allocate the cost of an asset over its useful life. It can be thought of as the loss value assets undergo due to wear and tear, and other effects.
Learn More on Depreciation MethodsRead CFI's complete guide to understand the different types of depreciation approaches and go through an example!