The formula
Straight line: base ÷ years · Sum of digits: base × (years remaining) ÷ sum of digits
Where it comes from
The depreciable base is not the purchase price but the price minus what it will be worth at the end of its useful life: that is what genuinely gets consumed. Straight line splits that base into equal parts, which is simple and what tax rules almost always accept. Sum of digits and declining balance load the early years more heavily, which is closer to reality: a car loses far more value in its first year than in its fifth.
How to work it out by hand
- Subtract the residual value from the purchase value: that is the depreciable base
- For straight line, divide the base by the years of useful life
- For sum of digits, split the base in proportion to the years remaining
- Record each year's book value by subtracting the accumulated charge
What is worth knowing
Accounting depreciation and tax depreciation need not coincide: every country publishes tables of maximum allowable rates by asset type, and those are the ones that count for tax. The method you choose does not change the total depreciated, which is always the base: it changes how that total is spread over time, and with it each year's result. Accelerating it brings the tax saving forward without changing its total size.