Depreciation Calculator
From asset cost, salvage value and useful life, compute the straight-line annual depreciation and yearly schedule.
Input Data
Results
At a glance:Straight-line depreciation = (asset cost - salvage value) / useful life, spread evenly each year. Each year book value falls by the same amount. Example: cost 120k, salvage 20k, life 10y → 10k/year; after 5y book value 70k. Depreciation is non-cash — it cuts taxable profit (tax shield) without cash outflow. WARNING: Straight-line assumes even usage; uneven-use assets may suit declining-balance or units-of-production. HK tax depreciation (capital allowances) follows the Inland Revenue Ordinance, not accounting straight-line — consult IRD. Education, not advice.
Formula
Annual depreciation = (asset cost − salvage value) / useful life.
Book value after N years = cost − annual depreciation × N.
How to Use
- Enter the asset cost and salvage value.
- Enter the useful life in years.
- View annual depreciation and book value after a chosen period.
FAQ
What is depreciation, in plain terms?
Depreciation is the accounting way to recognise that a long-lived asset (machine, vehicle, equipment, leasehold improvement) gradually wears out or becomes obsolete, so its cost is spread over the years it helps generate revenue — matching cost with the revenue it creates (accrual concept). It is a non-cash expense: it reduces reported profit and taxable income but involves no actual cash leaving, so it is a 'paper' cost that preserves cash while cutting tax.
Why subtract the salvage value?
Because you only consume the part of the asset that you use up; the salvage value is what you expect to recover at the end (trade-in, scrap, resale). So the depreciable base is cost minus salvage — the true amount to spread over the life. If salvage is zero, you depreciate the full cost.
How does depreciation save tax?
Depreciation is deductible (as an expense) when computing taxable profit, lowering the profit and thus the tax — a 'tax shield'. Since it is non-cash, the cash saved can be reinvested or kept as liquidity. Note: for tax purposes the deduction follows tax rules (capital allowances / depreciation pools), which may differ from accounting straight-line; check with the IRD.
What is the difference between accounting and tax depreciation?
Accounting depreciation follows accounting standards (e.g. HKFRS) to fairly show asset wear and profit — often straight-line, chosen by the company. Tax depreciation (capital allowances) follows the Inland Revenue Ordinance to determine deductible amounts — typically a prescribed declining-balance rate per asset class (or pooling), not straight-line. They often diverge, creating temporary 'timing differences' (deferred tax). This calculator shows the accounting straight-line base; for tax filing use the IRD's capital-allowance rules.
Which depreciation method should I choose?
It depends on the usage pattern. Straight-line: even usage, steady benefit (buildings, furniture, office equipment) — simplest, most common. Declining-balance: more expense early, less later — fits fast-tech-obsolescence assets (computers, vehicles) where benefit drops quickly. Units-of-production: by actual output/hours — fits machines whose wear depends on use. Choose to match the asset's economic benefit pattern; for tax, the IRD method applies. This tool demonstrates straight-line; for other methods see the relevant calculators or a tax advisor.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.