Quick answer: An asset costing 30,000 with a salvage value of 7,500 and a 10-year life depreciates by 2,250 a year straight-line; sum-of-years' digits charges 4,090.91 in year 1.
How it's calculated
Straight-line: (cost − salvage) ÷ life, the same each year. Sum-of-years' digits: (cost − salvage) × remaining life ÷ (1 + 2 + … + life), front-loading the charge.
Declining balance: book value × factor ÷ life each year (factor 2 is double declining balance). It never takes the book value below salvage and switches to straight-line once that gives more, like the spreadsheet VDB function.
Accounting rules (IFRS, as used in Saudi Arabia and the UAE) let a company pick the method that matches how the asset is used. Tax depreciation can follow other rules: in the US, MACRS in IRS Publication 946; in Saudi Arabia, the zakat and tax rules' asset groups.
Worked examples
- Straight-line, 30,000, 7,500 salvage, 10 years: 22,500 ÷ 10 = 2,250 a year
- Sum-of-years' digits, year 1: 22,500 × 10 ÷ 55 = 4,090.91
- Double declining, 2,400, 300 salvage, 10 years, year 1: 2,400 × 2 ÷ 10 = 480
Frequently asked questions
Which method should I use?
Straight-line is the most common and simplest. Accelerated methods suit assets that lose value fast, such as vehicles and computers.
What is salvage value?
What you expect the asset to be worth at the end of its useful life. Depreciation stops when the book value reaches it.
Does it handle part years?
No; each year is a full year. For an asset bought mid-year, scale the first year's charge by the months owned.
What is book value?
The asset's cost minus the depreciation charged so far. It's an accounting figure and can differ from what the asset would sell for.
Is depreciation real cash leaving the business?
No. You pay for the asset when you buy it. Depreciation spreads that cost over its useful life in the accounts.
Why do some methods charge more in early years?
Many assets lose more value when new. Declining balance and sum-of-years' digits reflect that, while straight-line charges the same each year.