[FAQ] How the system calculates Straight Line Depreciation on Fixed Assets

When a fixed asset uses the Straight Line depreciation method, a depreciation percentage is specified. This percentage, along with the acquisition cost and residual value, is used to determine the total yearly depreciation. Monthly depreciation values are then calculated based on the number of days in each month.

 

Example: An asset acquired on October 1, 2024, for $1,000.00 has a residual value of $200 and a depreciation percentage of 25%.

The formula for yearly depreciation is:

Yearly Depreciation = (Acquisition Cost − Residual Value) × Depreciation Percentage

 

Applying the values:

Yearly Depreciation = (1000 − 200) × 0.25 = 200

Thus, the yearly depreciation for this asset is $200.

 

To calculate the monthly depreciation, divide the yearly depreciation by the number of days in the year, and then multiply by the number of days in each month. Since 2024 is a leap year (366 days):

• For October (31 days):

  Monthly Depreciation = (200 / 366​) × 31 ≈ 16.94

• For November (30 days):

  Monthly Depreciation = (200​ / 366) × 30 ≈ 16.43

• For December (31 days):

  Monthly Depreciation = (200 / 366) × 31 ≈ 16.94

 

For 2025, which is a non-leap year (365 days):

• For months with 31 days:

  Monthly Depreciation =(200 / 365) × 31 ≈ 17.01

• For months with 30 days:

  Monthly Depreciation = (200 / 365​) x 30 ≈ 16.44
• For February:

        Monthly Depreciation = (200 / 365) x 28 ≈ 15.34