Methods for Calculating the Depreciation Amount

There are two methods available for calculating the depreciation amount: on one hand, the straight-line method, and on the other, the declining balance method. Both methods are explained in more detail here.

In order to calculate the annual depreciation amount, the following values must be known:

• Purchase price
• Estimated useful life
• Expected salvage value (resale value)

There are two different depreciation methods for calculation:

Straight-line (uniform) Depreciation

Here, the depreciation amount remains the same year after year, as it is assumed that the asset continuously and uniformly (linearly) depreciates. The purchase price serves as the basis for calculating the straight-line depreciation. To determine the annual depreciation rate, divide 100% by the number of years of useful life.

Declining Balance Depreciation

In this depreciation method, the depreciation amount decreases year by year. It is particularly suitable for assets that depreciate significantly at the beginning of their use, such as computers and vehicles. The basis for the calculation in the first year is the purchase price and in the following years the book value, i.e., the residual value according to accounting.