Depreciation spreads the cost of a fixed asset over the years it is used, so each year carries part of the cost instead of the year of purchase carrying all of it. Enter the cost, residual value, useful life and the month the asset went into use, pick a method, and the depreciation calculator gives you the charge, accumulated depreciation and book value for every financial year. If the asset started mid-year, the first year is charged only for its months in use. Below the calculator are the depreciation rates set by the Income Tax Law in Saudi Arabia for each asset group, to compare with your accounting charge.
How to calculate straight-line depreciation
Subtract the residual value (what you expect to sell the asset for at the end of its life) from the cost, then divide what remains by the useful life. Cost covers the purchase price and everything spent to get the asset ready for use, such as freight and installation. It excludes input VAT that a VAT-registered business reclaims.
Annual depreciation = (Cost − Residual value) ÷ Useful life
Part-year depreciation in the year of purchase
An asset that goes into use in April works nine months of its first year, so it takes nine-twelfths of a full year's charge, and the remaining three months fall into an extra year after the end of its life. Pick the start month and the schedule follows your actual financial years.
The advanced option adds a monthly schedule that spreads each year's charge over its months, which is what you need if you close the books every month.
Other depreciation methods
Declining balance multiplies the opening book value each year by a fixed rate, the factor divided by the useful life, so the charge is heavy early on and shrinks later. With a factor of 2 (double declining balance) and a five-year life the rate is 40%. When straight-line on the remaining amount gives a bigger charge, the calculator switches to it, and book value never drops below the residual value.
Sum-of-the-years' digits adds up the year numbers of the life: for five years that is 15, so year one takes 5/15 of the depreciable amount, year two 4/15, down to 1/15 in the last year. For the van: 33,333.33, 26,666.67, 20,000.00, 13,333.33 and 6,666.67.
Units of production ties the charge to use rather than time. Divide the depreciable amount by the total units expected over the asset's life (operating hours, kilometres or pieces produced) and multiply the result by each year's units.
Amortization meaning: amortization vs depreciation
Amortization is the same calculation applied to intangible assets: licensed software, trademarks, franchise fees and any other right with a limited life. It is normally straight-line with no residual value, so choose Straight-line and enter zero as the residual value. A SAR 36,000 accounting-software licence for three years is amortized at SAR 12,000.00 a year. In lending, amortization means paying down a loan's principal through instalments, which is a different calculation that this tool does not perform.
Fixed asset depreciation schedule in Excel
Download Excel gives you the schedule with live formulas: cost and residual value sit in two cells and every charge is calculated from them, so if the cost changes after you add accessories, the whole schedule updates. With the advanced option on, the workbook adds a sheet for the monthly schedule.
Typical useful lives
Useful life is an estimate the business sets in its accounting policy according to how it actually uses the asset, and its accountant reviews it. These are common starting ranges, not binding figures:
| Asset | Common range (years) |
|---|---|
| Buildings | 20–50 |
| Machinery and equipment | 5–15 |
| Cars and commercial vehicles | 4–8 |
| Furniture and fit-out | 5–10 |
| Computers and POS terminals | 3–5 |
Tax depreciation rates in Saudi Arabia
For income tax, Article 17 of the Income Tax Law sorts assets into groups and sets a rate for each, applied to the group's balance on a declining-balance basis. The rates in use:
| Group | Annual rate |
|---|---|
| Fixed buildings | 5% |
| Industrial and agricultural movable buildings | 10% |
| Factories, machinery, equipment, software, cars and cargo vehicles | 25% |
| Geological survey, drilling and exploration costs | 20% |
| Other assets, including furniture, aircraft, ships, trains and goodwill | 10% |
These rates are for the tax return and can differ from the accounting depreciation in your financial statements. Check the current law and its regulations with the Zakat, Tax and Customs Authority, and the zakat collection regulations if the business pays zakat, before relying on any rate.
Common depreciation mistakes
- Charging a full year in the year of purchase for an asset put into use in November.
- Depreciating land. Land is not depreciated, so split its value from the building first.
- Ignoring the residual value, so the asset is written down to zero although it will sell for a known amount.
- Adding reclaimable VAT to the asset's cost.
- Carrying on depreciating an asset that has been sold or taken out of service.
What to do with the result
Post each period's charge with a journal entry: debit depreciation expense, credit accumulated depreciation for that asset. Keep the schedule with the purchase invoice in your fixed asset register, and download it as a PDF for your auditor or as an Excel file to add more assets. For a full register of the company's assets, use the fixed asset register template.
When assets run into the dozens
One asset fits in a schedule. Once a business owns vehicles, devices and equipment bought in different months, the monthly entry for each one, and the sale of an asset part-way through its life, become repetitive work where mistakes creep in. At Microtec we offer businesses in the Kingdom accounting software (ERP) covering finance, purchasing, inventory, sales and HR, so an asset's purchase invoice and its depreciation entries live in the same system.