Depreciation Calculator
Calculate annual depreciation expense using the Straight Line Method.
Asset Details
Depreciation
Annual Depreciation Expense
₹18,000
Based on Straight-Line Method.
Managing Asset Value
Every physical asset (except land) loses value. Depreciation allows businesses to expense this loss systematically.
Comparison: Straight Line vs WDV
- Straight Line:
- Simple to calculate.
- Equal expense every year.
- Asset value can reach Zero.
- Written Down Value (WDV):
- More practical (assets lose more value initially).
- Higher expense in early years.
- Asset value never technically reaches Zero.
Note: Income Tax Act in India mandates WDV method for tax calculations, while Companies Act allows both methods for accounting.
Frequently Asked Questions
What is Depreciation?
Depreciation is the reduction in the value of an asset over time due to wear and tear, age, or obsolescence.
What is Straight Line Depreciation?
It is the simplest method where the value of the asset is reduced by a fixed amount every year until it reaches its salvage value.
What is Salvage/Residual Value?
It is the estimated resale value of the asset at the end of its useful life.
Formula for Straight Line Depreciation?
`Annual Expense = (Cost of Asset - Salvage Value) / Useful Life`.
What is Book Value?
Book Value is the value of the asset as per the balance sheet. `Book Value = Cost - Accumulated Depreciation`.
Can land be depreciated?
No! Land is assumed to have an infinite useful life and generally appreciates in value. However, buildings on the land can be depreciated.
What is WDV (Written Down Value) method?
Also known as Diminishing Balance method. Depreciation is charged at a fixed percentage on the opening book value of the year, not the original cost. It results in higher depreciation in early years.
Why charge depreciation?
To match the expense of the asset with the revenue it generates (Matching Principle) and to reduce taxable income.
What is useful life?
The estimated period (in years) that the asset is expected to be usable for the business.
Is depreciation a cash expense?
No. It is a 'non-cash' expense. No money leaves the bank account, but profit is reduced.