Calculated from the sample figures using the displayed formula.
What is the depreciation formula?
(Asset cost − Residual value) ÷ Useful lifeStraight-line depreciation allocates the depreciable amount evenly across the asset’s estimated useful life.
What do the inputs mean?
- Asset cost
- The value entered for asset cost. Keep its period and units consistent with the other inputs.
- Estimated residual value
- The value entered for estimated residual value. Keep its period and units consistent with the other inputs.
- Useful life in years
- The value entered for useful life in years. Keep its period and units consistent with the other inputs.
How to calculate it step by step
- Define the decision.
Write down what the result will help you compare or decide. - Collect matching inputs.
Use figures from the same period and apply the definitions shown on this page. - Apply the formula.
(Asset cost − Residual value) ÷ Useful life. - Check the units.
Confirm whether the result is a currency amount, percentage, number of periods or ratio. - Test a second case.
Change one assumption at a time to see what drives the result.
Worked example
Using the sample figures in the calculator, the result is $9,000.00. Change one figure at a time and recalculate to see which assumption has the greatest effect. A spreadsheet should return the same result when it uses the same formula, units and timing.
When should you use depreciation formula?
Use it when an even allocation reflects the expected pattern of consumption.
Limitations and common mistakes
Financial-reporting and tax depreciation can use different methods, lives and conventions.
Do not mix annual figures with monthly figures, ending balances with averages, or percentages with whole numbers. Record the definition used so another person can reproduce the result.
Frequently asked questions
What is depreciation formula?
Straight-line depreciation allocates the depreciable amount evenly across the asset’s estimated useful life.
How should I use depreciation formula?
Use the formula only after matching every input to the same period, unit and definition. Then compare the result with a worked example and the decision you are trying to make.
What is the most common mistake with depreciation formula?
Financial-reporting and tax depreciation can use different methods, lives and conventions.
Can I calculate depreciation formula in a spreadsheet?
Yes. Reproduce the displayed equation with separate cells for each input, keep percentages as decimals, and test the spreadsheet against the worked example before replacing the sample figures.
Sources and methodology
This page uses the IAS 16 Property, Plant and Equipment for the underlying financial or reporting context. Spreadsheet-related behavior is checked against Microsoft’s financial-function documentation. Examples are illustrative and use the formula displayed on the page.