Calculate annual straight-line depreciation for an asset.
Depreciation spreads the cost of an asset across the years it is used rather than expensing it all at purchase. The two common methods answer the same question differently. Straight-line divides the cost minus residual value by the useful life, producing an identical charge every year — simple, predictable, and a reasonable fit for assets that wear evenly, like furniture or a building fit-out.
Reducing balance applies a fixed percentage to the written-down value each year, so the charge is large at first and shrinks over time and never quite reaches zero. This matches how most machinery, vehicles and electronics actually lose value, since the steepest fall happens early. The choice is not purely presentational: it changes reported profit year by year, and in many jurisdictions tax depreciation follows prescribed rates and methods that differ from the accounting treatment entirely. The result is that an asset can carry three different values at once — book value, tax written-down value, and what it would actually sell for.
A business buys a laptop for ₹1,20,000 and expects to sell it for ₹20,000 after 4 years. Straight-line depreciation is (1,20,000 − 20,000) ÷ 4 = ₹25,000 a year, so the book value falls to ₹95,000, ₹70,000, ₹45,000 and finally ₹20,000.
With the reducing-balance (written-down value) method at 40% a year, year 1 depreciation is ₹48,000 (book value ₹72,000) and year 2 is ₹28,800 (book value ₹43,200). The cost is written off faster at the start, which often matches how quickly electronics actually lose value.
Last reviewed: 5 November 2026 by the YogiCalc team · How we calculate and verify · Spotted an error? Tell us
Straight-line suits assets that wear evenly and is simpler to explain. Reducing balance better matches assets that lose most value early, such as vehicles and electronics. Accounting standards and tax rules may also constrain the choice.
Because each year removes a percentage of whatever remains, and a percentage of a positive number is always positive. In practice the asset is written off or disposed of once the remaining value becomes immaterial.
The estimated amount the asset will be worth at the end of its useful life. Straight-line depreciation is calculated on cost minus residual value, so a higher residual estimate lowers the annual charge.
No, and the gap can be wide. Book value is the result of an accounting method and its assumptions; market value is what a buyer would pay. Tax written-down value is a third figure again, calculated under prescribed rules.
Business assets that wear out or become outdated over time, such as machinery, vehicles, computers and furniture. Land is not depreciated because it does not wear out.
Depreciation applies to physical assets like equipment. Amortisation is the same idea applied to intangible assets such as software licences or patents.