Agribusiness
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LESSON L060091: CALCULATING DEPRECIATION
Objectives
1. Define depreciation, describe why assets are
depreciated, and identify examples of
depreciable assets.
2. Calculate depreciation using the straight-line
method.
3. Calculate depreciation using the sum-thedigits method.
4. Calculate depreciation using the double
declining-balance method.
Terms
•Depreciable assets
•Depreciation
•Double declining-balance method
•Salvage value
•Straight-line method
•Sum-the-digits method
•Useful life
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Depreciation is a term that describes the decline in
value of an asset over time.
Depreciation is listed as an expense
on an income statement because of
the loss of value that occurs each year.
A. Assets are depreciated because, over time and
due to use, the total value declines.
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Assets are not worth as much as they were when they
were originally purchased due to wear and tear and
extended use of the items.
Assets are also depreciated for tax deduction purposes
because they count as an expense in tax preparation.
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B. Depreciable assets are any assets that have a
useful life of more than one year, normally capital
assets.
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Examples of depreciable assets include machinery,
equipment, and breeding livestock.
Items that appreciate in value, such as land, cannot be
depreciated.
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Straight-line method is a form of depreciation that
considers original cost, salvage value, and life of an
item and deducts the same amount of depreciation
each year of its useful life.

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It is the easiest and most
commonly used method of
depreciation.
A. Salvage value is the
remaining value of an asset
at the end of its useful life.
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B. Useful life is the number or years that a
depreciable asset is expected to be in use.
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The Internal Revenue Service provides a table to use as a
guide to determine the useful life of most assets.
C. The straight-line method of depreciation is
calculated by taking the original cost of the item
minus the salvage value, divided by useful life in
years.

The same amount of depreciation is taken each year of the
item’s useful life.

Sum-the-digits method is a form of depreciation that
uses the sum of the years of useful life, original cost,
and the salvage value of an asset.
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The percentage of depreciation declines each year of useful life
of the asset.
A. The sum-the-digits method is calculated by taking
the total years of useful life of the asset, divided by the
sum of the digits of the life, multiplied by the original
cost, minus the salvage value.
B. To calculate the sum-the-digits method of
depreciation, the following variables are required:
1. Useful life of an item
 2. Salvage value
 3. Original cost
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Double declining-balance method is an accelerated
form of depreciation that takes into account the
original cost, salvage value,
and useful life of an asset
while also considering the fact
that an asset will lose most of
its value during the first few
years of its useful life.
The double declining-balance
method of depreciation also converts to the straight
line method of depreciation once the straight line
value exceeds the amount calculated from the
double declining-balance method.
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B. For any given year during the useful life of an asset,
the owner should use the straight line method of
depreciation if it provides a larger depreciation amount.
A. To calculate the double declining-balance method of
depreciation, the following variables are required:
 1. Current value of the asset
 2. Useful life of the item
C. The algebraic equation is written as:
Amount = (Current Value) (2 ÷ Life)
REVIEW
•What is depreciation, why are assets
depreciated, and what are some examples of
depreciable assets?
•How do you calculate depreciation using the
straight-line method?
•How do you calculate depreciation using the
sum-the-digits method?
•How do you calculate depreciation using the
double declining-balance method?