Straight-line and declining-balance are the two depreciation methods you will meet most often. Both spread the cost of an asset over its useful life, and both end at the same place. The difference is timing: straight-line spreads the expense evenly, declining-balance front-loads it.
This article explains both methods with a fully worked example, shows where each one fits, and covers the practical details — salvage value, partial years and switching — that trip people up.
The inputs every method needs
- Cost — what it took to acquire the asset and get it ready for use (purchase price plus delivery, installation and similar directly attributable costs).
- Salvage value (also called residual value) — what you expect to recover at the end of its useful life.
- Useful life — how long you expect to use it, in years (or units of output for some methods).
- Depreciable base — cost minus salvage value. This is the total amount that will be depreciated over the asset's life.
Throughout this article we use one example:
A delivery van costs $12,000, has an expected salvage value of $2,000, and a useful life of 5 years. Depreciable base = $12,000 − $2,000 = $10,000.
Straight-line depreciation
Straight-line depreciation charges the same amount every year:
Annual depreciation = (Cost − Salvage value) ÷ Useful life
For the van: ($12,000 − $2,000) ÷ 5 = $2,000 per year.
| Year | Opening NBV | Depreciation | Accumulated depreciation | Closing NBV |
|---|---|---|---|---|
| 1 | $12,000 | $2,000 | $2,000 | $10,000 |
| 2 | $10,000 | $2,000 | $4,000 | $8,000 |
| 3 | $8,000 | $2,000 | $6,000 | $6,000 |
| 4 | $6,000 | $2,000 | $8,000 | $4,000 |
| 5 | $4,000 | $2,000 | $10,000 | $2,000 |
The closing net book value at the end of year 5 equals the salvage value, $2,000. Total depreciation equals the depreciable base, $10,000.
Why use it: it is simple, easy to audit, and a good match for assets that deliver roughly equal benefit each year — buildings, furniture, many kinds of equipment. It is the most common method for book (financial reporting) purposes.
Declining-balance depreciation
Declining-balance applies a fixed percentage to the opening net book value each year, so the charge shrinks as the NBV shrinks. The most common variant is double-declining balance (DDB), which uses twice the straight-line rate.
Straight-line rate = 1 ÷ Useful life = 1 ÷ 5 = 20% DDB rate = 2 × 20% = 40%
Annual depreciation = Opening NBV × 40%, but never taking NBV below salvage value.
Note that salvage value is not subtracted before applying the rate — it acts as a floor.
| Year | Opening NBV | Calculation | Depreciation | Closing NBV |
|---|---|---|---|---|
| 1 | $12,000.00 | $12,000.00 × 40% | $4,800.00 | $7,200.00 |
| 2 | $7,200.00 | $7,200.00 × 40% | $2,880.00 | $4,320.00 |
| 3 | $4,320.00 | $4,320.00 × 40% | $1,728.00 | $2,592.00 |
| 4 | $2,592.00 | 40% would give $1,036.80, which would take NBV below $2,000 — capped | $592.00 | $2,000.00 |
| 5 | $2,000.00 | Already at salvage value | $0.00 | $2,000.00 |
Total depreciation: $4,800 + $2,880 + $1,728 + $592 = $10,000 — the same as straight-line. Only the timing differs.
The switch to straight-line
In many cases — especially when salvage value is low — declining-balance on its own would never reach salvage value within the useful life. The common solution is to switch to straight-line in the first year where straight-line on the remaining balance gives a larger charge than the declining-balance calculation. In our example the salvage floor was hit first, so no switch was needed; with a salvage value of zero, the switch would matter. Your software or policy should state which rule applies.
150% declining balance
A gentler variant uses 1.5× the straight-line rate: 1.5 × 20% = 30%. For the van, year 1 would be $12,000 × 30% = $3,600, and year 2 would be $8,400 × 30% = $2,520 — still front-loaded, but less aggressively than DDB.
Side by side
| Year | Straight-line charge | DDB charge | Straight-line closing NBV | DDB closing NBV |
|---|---|---|---|---|
| 1 | $2,000 | $4,800 | $10,000 | $7,200 |
| 2 | $2,000 | $2,880 | $8,000 | $4,320 |
| 3 | $2,000 | $1,728 | $6,000 | $2,592 |
| 4 | $2,000 | $592 | $4,000 | $2,000 |
| 5 | $2,000 | $0 | $2,000 | $2,000 |
| Total | $10,000 | $10,000 |
After two years, straight-line has expensed $4,000 and DDB has expensed $7,680. That difference affects reported profit in early years, but not in total.
Which one should you use?
- Straight-line fits assets that deliver steady value, and it is the default for most book depreciation because it is easy to explain.
- Declining-balance fits assets that lose value or productivity fastest when new — vehicles, computers, technology that becomes obsolete. It can also better match higher repair costs later in life: depreciation falls as maintenance rises.
- Tax rules may dictate the method. Many tax systems prescribe their own methods and rates (in the US, for example, MACRS uses declining-balance with prescribed conventions). Tax treatment varies by jurisdiction; confirm with your accountant or tax adviser.
Consistency matters more than the choice. Accounting standards generally expect the method to reflect how the asset's benefits are consumed and to be applied consistently, with changes justified and disclosed.
Practical details that cause errors
- Partial years. Assets are rarely bought on the first day of the year. Common conventions are full-month (depreciate from the month placed in service), half-year, or actual days. Pick one and apply it consistently.
- Changing estimates. If you revise useful life or salvage value, the change is normally applied prospectively — the remaining NBV is depreciated over the remaining life — not by restating past years.
- Salvage value of zero. Common for IT equipment. Straight-line then simply divides cost by life.
- Impairment and disposal. If an asset is damaged or sold early, depreciation stops and the gain or loss is calculated against NBV at that date.
Try your own numbers in the free depreciation calculator.
Depreciation in Asetavo
Asetavo's depreciation module supports straight-line, reducing (declining) balance, double-declining balance, sum-of-years-digits, units of production, MACRS and UK capital allowances. You can run a book profile that drives NBV and a separate tax profile that is report-only, both against the same register. Compute runs are drafts that never change NBV until you post them, and valuation reports export to CSV or PDF. Depreciation is part of the Business plan — see pricing.
Go deeper with fixed asset depreciation explained, which covers sum-of-years-digits, units of production and MACRS with worked examples.