Straight-Line vs Declining Balance (WDV) Depreciation

Straight-line depreciation writes off an equal amount each year over an asset's useful life. Declining balance — called reducing balance in the UK and written-down value (WDV) in India — applies a fixed percentage to the remaining book value, so early years absorb more. Straight-line suits evenly wearing equipment; declining balance suits assets that lose value fast.

Depreciation turns up in asset registers for two unrelated reasons, and conflating them causes a lot of pointless argument.

Finance needs it for the accounts. Operations needs it to answer one question: is this repair quote sensible given what the thing is currently worth? That's the entire operational use.

This piece is mostly about the second one. You still have to pick a method your finance team recognises, which in practice means straight-line or some form of declining balance — and, if you're in the US or UK, understand why the tax return will show a different number again.

One method, four names

The method that charges a fixed percentage of the remaining value goes by several names, and they are the same family:

Name	Where you'll see it
Declining balance (including 'double-declining' or 200% DB)	US usage; IRS Publication 946 and MACRS
Reducing balance	Common UK usage; HMRC capital allowance pools work this way
Diminishing balance	The wording in IAS 16 and FRS 102
Written-down value (WDV)	India and parts of Asia; also the UK term for the pool balance in capital allowances

FRS 102 paragraph 17.22 lists 'the straight-line method, the diminishing balance method and a method based on usage such as the units of production method' as the possible choices (FRS 102, FRC), and the IFRS Foundation's IAS 16 summary names the same three. US GAAP does not prescribe a method; ASC 360 asks for allocation 'in a systematic and rational manner' (Deloitte DART, ASC 360). For an asset register, the two that cover nearly every case are straight-line (SLM) and WDV.

Straight-line (SLM)

Straight-line spreads cost evenly across the asset's useful life.

Annual depreciation = (purchase price − salvage value) ÷ useful life in years

Worked example: a $3,000 instrument with a $300 salvage value and a five-year life depreciates $540 a year, reaching salvage value at the end of year five.

Year	Opening value	Depreciation	Closing book value
1	$3,000	$540	$2,460
2	$2,460	$540	$1,920
3	$1,920	$540	$1,380
4	$1,380	$540	$840
5	$840	$540	$300

Declining balance / written-down value (WDV)

Declining balance applies a fixed percentage to whatever the asset is currently worth. The charge is large early and shrinks each year, so the asset never quite reaches zero on its own.

Annual depreciation = opening book value × rate

The same $3,000 instrument at a 40% rate:

Year	Opening value	Depreciation at 40%	Closing book value
1	$3,000	$1,200	$1,800
2	$1,800	$720	$1,080
3	$1,080	$432	$648
4	$648	$259	$389
5	$389	$156	$233

Where a rate like 40% comes from

The commonest way to set the rate is as a multiple of the straight-line rate. Double-declining balance uses twice the straight-line rate: for a five-year life, 2 ÷ 5 = 40%. That is exactly how IRS Publication 946 works its 200% declining balance examples — 'dividing 2 (200%) by 5' — and it is why the US tax schedule for a five-year asset looks so front-loaded.

Pure declining balance leaves a tail. In practice, schemes either switch to straight-line once that gives a larger charge (MACRS does this), write the residual off at disposal, or stop at salvage value.

Choosing between them

	Straight-line	Declining balance / WDV
Charge pattern	Equal every year	Front-loaded, tapering
Reaches zero	Yes, or salvage, at end of life	No — approaches it unless you switch or write off
Simplicity	Easiest to explain	Needs a rate agreed
Best fit	Equipment that wears evenly — furniture, fittings, tools	Assets that lose value fast early — IT hardware, vehicles
Effect on repair decisions	Book value stays high longer	Book value drops quickly, favouring replacement sooner

That last row is the one operations feels. Under declining balance an asset's book value falls below a typical repair quote much sooner, which pushes more decisions towards replacement. Neither answer is wrong; you should just know which bias your method introduces. The depreciation calculator shows both curves for any asset.

US tax depreciation: MACRS, Section 179 and bonus

Everything above is book depreciation. The US tax return runs on separate rules, so a well-kept register holds a second set of figures.

MACRS

For property placed in service after 1986, you generally must use the Modified Accelerated Cost Recovery System (IRS Topic 704). Publication 946 assigns each asset a class: computers and office machinery are 5-year property; office furniture and fixtures are 7-year property. The general system offers 200% declining balance, 150% declining balance or straight-line over the recovery period.

MACRS also applies conventions. The half-year convention treats property as placed in service in the middle of the year. If more than 40% of the year's depreciable basis is placed in service in the last three months, the mid-quarter convention applies instead.

Section 179 and bonus depreciation

Section 179. For tax years beginning in 2026 you can elect to expense up to $2,560,000 of qualifying property, reduced dollar for dollar once purchases exceed $4,090,000; the SUV cap is $32,000 (IRS Rev. Proc. 2025-32). For 2025 the figures were $2,500,000 and $4,000,000 (Publication 946).
Bonus (special) depreciation. The One Big Beautiful Bill Act reinstated a 100% allowance for qualified property acquired and placed in service after 19 January 2025, with an election to take 40% instead in the first tax year ending after that date (Publication 946).
De minimis safe harbor. Items up to $2,500 per invoice or item ($5,000 with an applicable financial statement) can be deducted outright if they are also expensed in your books (IRS).

The upshot: a laptop may be fully deducted for tax in year one while your books depreciate it over three years. That is normal. The register should hold the book method; the tax figures belong with whoever prepares the return, or in a separate tax book.

UK tax: capital allowances instead of depreciation

The UK goes further. HMRC states that 'Depreciation of fixed assets charged in the accounts is not allowed as a deduction in computing taxable profits' — capital allowances are given instead (HMRC CA20006).

Allowance	What it gives	Who and what
Annual Investment Allowance	100% of cost, up to £1 million a year	Most plant and machinery; not cars
Full expensing	100% first-year allowance, no cap	Companies only; new and unused main-rate plant and machinery; not cars
New 40% first-year allowance	40% in year one	Main-rate spending from 1 January 2026; available to unincorporated businesses and leasing providers
Main pool writing-down allowance	14% a year on a reducing balance (18% before April 2026)	Spending not relieved another way
Special rate pool	6% a year on a reducing balance	Special-rate assets

Sources: GOV.UK, Annual Investment Allowance; GOV.UK, full expensing; HM Treasury/HMRC, new first-year allowance and reduced main rate. The main-rate change takes effect from 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax.

Note the irony: the writing-down allowance is itself a reducing-balance method, applied to a pool rather than to individual assets. It's why 'WDV' in a UK tax computation means the pool's remaining balance, not an asset's book value.

What to set on an asset, and once

Purchase price and in-service date — without these nothing else computes.
Method — straight-line or declining balance, agreed with finance so the register and the accounts don't diverge.
Useful life in years for straight-line, or a rate for declining balance.
Salvage value where the item has a meaningful residual worth at end of life.

Set these at acquisition, by category rather than by item where you can, and book value maintains itself from that point on.

Which method for which equipment

Agree this with finance by category rather than per item, otherwise you'll be making the same decision four hundred times.

Category	Common book method	Typical book life	US MACRS class	Why
Laptops, phones, tablets	Declining balance or 3-year straight-line	3 years	5-year	Loses most value early
Monitors, docks, peripherals	Straight-line	4–5 years	5-year	Wears evenly, low value
Copiers and office machinery	Straight-line	5 years	5-year	Predictable wear
Test and calibrated instruments	Straight-line	5–8 years	Depends on activity class	Long life if maintained
Office furniture and fixtures	Straight-line	7–10 years	7-year	Very slow decline

The book lives are common conventions rather than rules, and your accounting policy wins wherever it differs. The MACRS classes are from Publication 946. The point is consistency within a category, not the precise figure.

Part-year depreciation, which trips people up

An asset bought in October shouldn't absorb a full year of depreciation by December. Conventions vary:

Pro rata by month — most accurate for book purposes, and what most asset systems compute.
Half-year convention — half a year's charge in the year of acquisition, regardless of month. The default for US MACRS.
Full year in year of purchase — simplest, and overstates early depreciation. UK capital allowances such as the AIA are claimed for the accounting period in which you bought the asset.

For the books, use whatever your accounting policy says. FRS 102 is explicit that depreciation begins when the asset is available for use, not when it is paid for.

Salvage value, and why most people set it to zero

Salvage (residual) value is what you expect the asset to be worth at the end of its useful life. Under straight-line it is subtracted before the annual charge is worked out, so the asset depreciates to that figure rather than to nothing.

Many organisations set it to zero: it is hard to predict years ahead, it is usually too small to change a decision, and a non-zero residual on something you eventually scrap leaves a balance somebody has to write off. It's worth setting where there is a real second-hand market — vehicles, specialist instruments, some plant. Note that IAS 16 expects residual value and useful life to be reviewed at least at each financial year-end (BDO), so a residual figure isn't set-and-forget under IFRS.

What happens at the end of the schedule

An asset that reaches the end of its useful life doesn't stop existing, and this is where registers quietly go wrong.

Situation	Book value	What to do
Fully depreciated, still in use	Zero or salvage	Keep it on the register — it still needs tracking
Fully depreciated, retired	Zero	Close the record with a disposal date and method
Still in use well past its life	Zero	Review the useful life for that category — it was set too short
Disposed but not closed	Zero, and wrong	A phantom asset — close it

The first row catches people out. A fully depreciated item is worth nothing on the books and may be worth a great deal operationally. Removing it from the register because finance has finished with it is how equipment becomes untracked.

When book value and market value part company

Book value is an accounting construct. It isn't what the item would fetch, and for some categories the gap is large in both directions.

Specialist instruments can hold resale value well above book. Consumer IT often falls below book faster than any schedule. For a repair-or-replace decision, book value is a reasonable benchmark because it reflects remaining useful life. For a disposal decision, market value is the right one. Using one where the other belongs produces decisions that look defensible on paper and are wrong.

A caution worth stating plainly

An asset register that computes book value isn't an accounting system. It doesn't post journals, it doesn't compute your MACRS schedule or capital allowance pools, and it doesn't know your jurisdiction's rules.

Its job is to give an operational answer to an operational question — is this repair proportionate — and to export clean figures to whoever keeps the ledger. Stackroom, for instance, computes straight-line and WDV book value and produces a depreciation schedule report; the tax side stays with your accountant. Treat any divergence between register and ledger as a question for finance rather than a bug. More on the register itself in what is a fixed asset register, and on using book value in practice in repair or replace.

Sources

Key takeaways

Straight-line spreads cost evenly and reaches salvage value at end of life.
Declining balance, reducing balance, diminishing balance and written-down value are the same family: a fixed rate on the remaining value.
Double-declining balance uses twice the straight-line rate — 40% for a five-year life, as in US MACRS 200% DB.
US tax depreciation runs separately: MACRS classes, a 2026 Section 179 limit of $2,560,000, and 100% bonus for property acquired after 19 January 2025.
In the UK accounting depreciation isn't tax-deductible; capital allowances (AIA up to £1m, full expensing for companies) apply instead.
An asset register computing book value is not an accounting or tax system — agree the method with finance and export rather than diverge.

Frequently asked questions

Is written-down value the same as declining balance depreciation?

Yes. Written-down value (WDV), the term used in India, is the same method that US accountants call declining balance and UK accountants call reducing balance; IAS 16 and FRS 102 call it diminishing balance. In each case a fixed percentage is applied to the asset's remaining book value each year, so the charge is largest at the start.

What is the difference between straight-line and declining balance depreciation?

Straight-line charges the same amount every year over a defined useful life and reaches salvage value at the end. Declining balance charges a fixed percentage of the remaining book value, so the charge is largest in year one and shrinks each year. Straight-line suits evenly wearing equipment; declining balance suits assets such as IT hardware that lose value quickly.

Which depreciation method is best for IT equipment?

Declining balance usually reflects reality better for book purposes, because laptops and phones lose much of their value early. Straight-line over three years is also common and simpler to explain. For US tax, computers are 5-year MACRS property and may qualify for Section 179 or bonus depreciation. Agree the book method with finance rather than in the asset register.

What is MACRS depreciation?

MACRS, the Modified Accelerated Cost Recovery System, is the depreciation system the IRS generally requires for business property placed in service after 1986. Each asset is assigned a class, such as 5-year for computers or 7-year for office furniture, and depreciated using 200% or 150% declining balance or straight-line, usually with a half-year convention in the first year.

What is the Section 179 limit for 2026?

For tax years beginning in 2026, a business can elect to expense up to $2,560,000 of qualifying Section 179 property. The limit is reduced dollar for dollar once the cost of qualifying property placed in service in the year exceeds $4,090,000, and the cap for a sport utility vehicle is $32,000, according to IRS Revenue Procedure 2025-32.

Is depreciation tax-deductible in the UK?

No. HMRC does not allow accounting depreciation as a deduction when computing taxable profits. Instead, businesses claim capital allowances: the Annual Investment Allowance gives 100% relief on most plant and machinery up to £1 million a year, companies can claim full expensing on new main-rate assets, and the rest goes into pools written down at 14% or 6% a year.

What is salvage value?

The amount you expect the asset to be worth at the end of its useful life, whether from resale or scrap. Under straight-line it is subtracted before the annual charge is calculated, so the asset depreciates to that figure rather than to zero. Many organisations set it to zero for simplicity, though IFRS reporters must review it each year-end.

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