Depreciation Calculator
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What is Depreciation?
In simple words, Depreciation refers to the deterioration in the value of an asset over a given period. It occurs when it wears out, when it becomes old, or when it becomes technologically outdated. The more it wears, the more its value decreases.
From a financial perspective, Depreciation aids companies to spread the cost of the asset over the useful life of the asset rather than allow the deduction of the cost as a whole. This is vital when it comes to budgeting, taxation and in the calculation of asset value in the given condition.
But is manual calculation of Depreciation possible? That would be like doing a jigsaw puzzle with pieces missing. It is best to use the online depreciation calculator, which makes the calculation easy and provides you with answers within a few seconds.
Why Do You Need to Care About Depreciation?
You might be thinking, ‘Fine, my machine and equipment depreciate, so what?’ Well, more than you may think, depreciation influences. Here is why you should pay attention to it:
Tax Benefits: Depreciation can reduce your taxable income if you have a business. The Income Tax Department allows you to write off a part of the cost of an asset annually, and this will save you some money.
Budgeting: Having an idea of how much your assets are going to be worth in the future makes it possible to plan on replacements or upgrades.
Resale Value: When you are considering selling your machinery or equipment, it is important to know about Depreciation so that you will be able to price it realistically.
Let us share a quick story,
One of our users purchased a second-hand delivery van for her job-work business. At ₹150,000, she considered it a steal deal, but she did not factor in the speed at which it would lose its value. When she wanted to upgrade two years later, she was taken aback to realise that it was valued at way below half of what she had paid. She could have anticipated this if she had been using a depreciation calculator.
How Does Munim’s Depreciation Calculator Work?
Munim’s depreciation calculator online can be considered a go-to tool for calculating depreciation. Users simply have to feed the following data, and the calculator will calculate the result automatically:
- Purchase cost of the asset
- Salvage value (estimated value at the end of its use)
- Useful life (in years)
- Depreciation method
The key advantages of our depreciation tool are prompt response, accuracy, and the capacity to meet the needs of the majority of users without resorting to scribbling formulas on paper.
Whether used by a small-business owner tasked with managing assets or a homeowner seeking a proper valuation of a personal vehicle, Munim’s online depreciation calculator can make the heavy calculative task easier.
Methods of Calculating Depreciation
The Depreciation of assets differs significantly. A motor vehicle may depreciate substantially in its first few years, but heavy machinery may not. Due to the difference in depreciation patterns, several methods of calculation have been developed. The overview below highlights the most popular methods, which allow you to decide which method will best fit a particular situation.
Straight Line Method of Depreciation
The simplest and, therefore, the most frequently used method is the straight-line Depreciation. This method assumes that an asset depreciates by the same value every year. In other words, it spreads the cost of an asset equally across its useful life.
Best for: Furniture, office equipment, and buildings.
Here’s the depreciation formula for the straight line method:
Annual Depreciation = (Cost of Asset – Salvage Value) ÷ Useful Life
When a company purchases a printer at the price of ₹20,000, it is expected to last five years, and the company would get ₹5000 when selling it. Using the formula:
(₹20,000 – ₹5000) ÷ 5 = ₹3000 per year
The Depreciation is about₹3000 per year, which means that the value of the printer reduces by this amount in a year.
Declining Balance Method of Depreciation
This method assumes that the value of the asset depreciates the most at the start of the useful life and at an increasingly slow pace as time goes by. This kind of trend is similar to one that is experienced in a new car; once it leaves the showroom, its value goes down drastically. Also, applicable to tech gadgets.
The declining balance method uses a fixed percentage called ‘depreciation rate’ and applies it to the value of the asset that is remaining each year.
Formula:
Depreciation = Book Value at Start of Year × Depreciation Rate
As an example, consider a depreciation rate of 20 per cent on a printer costing ₹20,000
The first year, the Depreciation would be 20% of ₹20,000 or ₹4000.
The second year 20% of the remaining (₹20,000 – ₹4000) is ₹16000 or ₹3200
Best for: Vehicles, electronics, and assets that lose value quickly.
Sum of the Years’ Digits (SYD) Method of Depreciation
The Sum of the Years Digits (SYD) method is an accelerated depreciation method, it means, the asset will depreciate a greater part of its value during the initial years of its useful life. This approach captures the notion that assets are more likely to lose value in the early years (as a result of wear and tear or technological obsolescence), and less value as they grow older.
Depreciation for a year (Sum of the Years/Remaining Life of Asset)×(Cost of Asset−Salvage Value)
Example of the Sum of the Years’ Digits (SYD) Method of Depreciation:
Asset: Delivery van
Cost: ₹50,000
Salvage value: ₹5,000
Useful life: 5 years
Step 1: Calculate the sum of the years:
The sum of the years for 5 years would be:
5+4+3+2+1=15
Step 2: Calculate the depreciable value:
Depreciable value = Cost of Asset – Salvage Value
₹50,000−₹5,000=₹45,000
Step 3: Determine Depreciation for each year:
Year 1: (5/15) × ₹45,000 = ₹15,000
Year 2: (4/15) × ₹45,000 = ₹12,000
Year 3: (3/15) × ₹45,000 = ₹9,000
Year 4: (2/15) × ₹45,000 = ₹6,000
Year 5: (1/15) × ₹45,000 = ₹3,000
Summary of Depreciation for Each Year:
| Year | Depreciation Expense (₹) | Remaining Book Value (₹) |
|---|---|---|
| Year 1 | ₹15,000 | ₹35,000 |
| Year 2 | ₹12,000 | ₹23,000 |
| Year 3 | ₹9,000 | ₹14,000 |
| Year 4 | ₹6,000 | ₹8,000 |
| Year 5 | ₹3,000 | ₹5,000 |
Steps to Use a Depreciation Calculator Online
A depreciation calculator online simplifies the process of calculating Depreciation for assets. Rather than doing the calculation of depreciation year by year and possibly ending up with errors, an online calculator will quickly do the math for you. Here are the steps to use Munim’s depreciation calculator effectively:
- Step 1: Select the Depreciation Method
First, you should select the depreciation method that is applied to your asset. Various assets might need different approaches, like the straight-line method or the declining balance method. Based on your selection, the calculator will make the necessary adjustments. - Step 2: Enter the Asset’s Cost
You will be required to enter the purchase cost of the asset. This is what you initially paid for the asset. One should be precise in this case, as it will influence the amount of Depreciation that will be calculated annually. - Step 3: Input the Salvage Value
Salvage value is the value of the asset that is estimated at the end of its useful life. This may be the anticipated resale value. - Step 4: Feed the Useful Life
You should also enter the useful life of the asset in years. This is the period during which the asset is likely to be utilised in business before it is obsolete or inefficient. - Step 5: Click ‘Calculate’
After feeding all the information, click on the ‘calculate’ button. The depreciation calculator will use the provided data and selected depreciation method to calculate the depreciation value.
Benefits of Using an Online Depreciation Calculator?
Using a depreciation calculator online offers several advantages:
- 1. Time-saving:
You do not need to do the calculations manually. - 2. Reduces Mistakes:
Depreciation calculation is a complex process, and some methods are more complicated than others. - 3. Graphical Presentation:
Tabulated data will allow you to get a better idea of how the value of the asset will change over the course of its useful life.
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Frequently Asked Questions (FAQ)
Which is the best depreciation calculator online?
There are many free options available online to calculate Depreciation. However, Munim’s depreciation calculator is the best because it lets you choose different depreciation methods.
