← Equipment management glossary
Also called: machine depreciation, asset depreciation.
The forklift was fully written down, so the schedule said zero. We sold it for four thousand, and then had to explain where that number had come from.
Depreciation is an accounting convention, not a market valuation. The two answer different questions and are frequently far apart.
Straight-line depreciation
Straight-line spreads the cost evenly across the useful life. It is the default because it is simple to calculate, simple to explain, and adequate for equipment that wears out steadily.
Annual depreciation = (Purchase value − Salvage value) ÷ Useful life in years
-
Purchase value
What it cost to acquire and make usable — not only the invoice line.
-
Salvage value
What you expect it to be worth at the end. An estimate, and usually the softest number in the calculation.
-
Useful life in years
How long you expect to get out of it. This is a policy decision rather than a property of the machine, and it is what actually sets the annual figure.
The other two methods worth knowing
Declining balance applies a fixed percentage to the remaining book value each year, so it front-loads the expense. It matches equipment that loses most of its value early — vehicles and computers being the usual examples.
Units of production depreciates by use rather than time: cost per hour, cycle or kilometre. This is the honest method for equipment whose life genuinely depends on how hard it is worked, and it is the one that needs real usage data to be anything other than a guess.
Book value is not resale value
Depreciation is an accounting convention, not a market valuation. An item can be fully depreciated to zero on paper and still sell for a useful sum, or carry substantial book value while being effectively worthless because nobody wants that model any more.
For insurance, replacement budgeting and disposal decisions, treat book value as one input and current market prices as another.
What goes wrong without it
Organisations that never record purchase value and expected salvage cannot forecast replacement cost, so capital equipment gets replaced reactively — at whatever the price is on the day it dies.
How Itefy handles it
Itefy holds purchase date, purchase value and expected salvage value per item, so value reporting and replacement planning work from the register rather than a separate sheet. Read more.