Depreciation Methods Comparison Guide

Choosing the right depreciation method affects your financial statements and tax liabilities. This guide compares the most common methods to help you decide which is best for your assets.

Comparison Table

Method	Best For	Speed	Complexity
Straight Line	Furniture, Buildings, simple assets	Constant	Low
Double Declining	Tech, Vehicles (rapid loss of value)	Fast (Accelerated)	Medium
MACRS (USA)	All US Business Tax Returns	Fast (Accelerated)	High
Units of Production	Manufacturing machinery, Vehicles (miles)	Variable	Medium
Sum of Years Digits	Assets with high early productivity	Fast	Medium

1. Straight Line Depreciation

The simplest and most common method. It assumes the asset loses value steadily over time.
Formula: (Cost - Salvage Value) / Useful Life

Pros: Easy to calculate, consistent expense.
Cons: Doesn't reflect accurate value for assets that age quickly (like computers).
Use case: Office furniture, buildings, patents.

2. Declining Balance (150% or 200% DDB)

An accelerated method that expenses more in the early years.
Formula: (Book Value at Beginning of Year × Factor) / Useful Life

Pros: Matches expense with revenue (assets are often more productive when new). Reduces tax early on.
Cons: More calculation steps.
Use case: Cars, trucks, computers, machinery.

3. MACRS (US Tax System)

The Modified Accelerated Cost Recovery System is required by the IRS for most businesses. It uses specific tables and conventions (Half-Year, Mid-Quarter).

Pros: Maximizes tax deductions legally.
Cons: Rigid rules, requires looking up IRS tables.
Use case: US Federal Tax Returns (Form 4562).

Which methods should I use?

For Internal Accounting (Book): Most companies use Straight Line for simplicity and consistency.
For Tax Reporting: You typically must use the method prescribed by your local tax authority (e.g., MACRS in the US, Capital Allowances in the UK).

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