Book depreciation is calculated for financial statements under a framework such as IFRS or US GAAP, using estimates of useful life and salvage value that reflect how the asset is used. Tax depreciation is calculated under tax law — for example MACRS in the US or capital allowances in the UK — which often prescribes methods and periods and may allow faster deductions. Most organizations therefore maintain two schedules for the same asset.
Worked example
$10,000 of computer equipment. Book: straight-line over 5 years, no salvage, full-year convention for simplicity. Tax: US MACRS 5-year property, half-year convention.
| Year | Book depreciation | Tax depreciation | Book NBV (end) | Tax basis (end) | Difference |
|---|---|---|---|---|---|
| 1 | $2,000 | $2,000 | $8,000 | $8,000 | $0 |
| 2 | $2,000 | $3,200 | $6,000 | $4,800 | $1,200 |
| 3 | $2,000 | $1,920 | $4,000 | $2,880 | $1,120 |
| 4 | $2,000 | $1,152 | $2,000 | $1,728 | $272 |
| 5 | $2,000 | $1,152 | $0 | $576 | ($576) |
| 6 | — | $576 | $0 | $0 | $0 |
Why it matters
Timing differences mean taxable profit differs from accounting profit, creating deferred tax balances in the accounts. Keeping both schedules in the asset register — rather than in separate spreadsheets — keeps them consistent with the physical assets and with disposals.
Try the numbers yourself in our free depreciation calculator.
In Asetavo
Asetavo keeps separate book and tax profiles for each asset. Only the book run changes NBV; the tax run is report-only with its own running total, so you get both views from one register.