Calculate annual straight-line depreciation for an asset.
Depreciation spreads the cost of an asset across the years it is used rather than expensing it all at purchase. The two common methods answer the same question differently. Straight-line divides the cost minus residual value by the useful life, producing an identical charge every year — simple, predictable, and a reasonable fit for assets that wear evenly, like furniture or a building fit-out.
Reducing balance applies a fixed percentage to the written-down value each year, so the charge is large at first and shrinks over time and never quite reaches zero. This matches how most machinery, vehicles and electronics actually lose value, since the steepest fall happens early. The choice is not purely presentational: it changes reported profit year by year, and in many jurisdictions tax depreciation follows prescribed rates and methods that differ from the accounting treatment entirely. The result is that an asset can carry three different values at once — book value, tax written-down value, and what it would actually sell for.
Straight-line suits assets that wear evenly and is simpler to explain. Reducing balance better matches assets that lose most value early, such as vehicles and electronics. Accounting standards and tax rules may also constrain the choice.
Because each year removes a percentage of whatever remains, and a percentage of a positive number is always positive. In practice the asset is written off or disposed of once the remaining value becomes immaterial.
The estimated amount the asset will be worth at the end of its useful life. Straight-line depreciation is calculated on cost minus residual value, so a higher residual estimate lowers the annual charge.
No, and the gap can be wide. Book value is the result of an accounting method and its assumptions; market value is what a buyer would pay. Tax written-down value is a third figure again, calculated under prescribed rules.