What is the formula for depreciation of machinery?

Depreciation of machinery is most commonly calculated with the straight-line formula: Annual Depreciation = (Acquisition Cost minus Residual Value) divided by Useful Life in Years.

This formula spreads the depreciable amount evenly across the asset's expected service life. For example, a CNC machine purchased for $500,000 with a $50,000 salvage value and a 10-year useful life depreciates at $45,000 per year. The three inputs, cost, residual value, and useful life, are the foundation of nearly every machinery depreciation calculation.

Other Methods Used in Machinery Valuation

Straight-line depreciation is not the only accepted approach. The right method depends on how the asset loses value over time:

• Declining-balance: A fixed percentage is applied to the remaining book value each year, front-loading depreciation. This suits equipment that loses value quickly in its early years.
• Written-down value (WDV): Similar in concept to declining-balance, the rate is derived from the formula R = (1 minus (S/C) to the power of 1/n) multiplied by 100, where S is salvage value, C is original cost, and n is useful life.
• Units-of-production: Annual Depreciation = ((Cost minus Residual Value) divided by Total Estimated Production) multiplied by Units Produced That Year. This method is well suited to equipment whose wear depends more on usage than on the passage of time.

For formal appraisal purposes, our appraisers do not simply apply a formula in isolation. A USPAP-compliant valuation considers observed physical condition, functional obsolescence, economic obsolescence, and current market data to arrive at a defensible value. To learn more about how these principles apply to your equipment, explore our machinery and equipment appraisal services. Ready to get started? Request an Appraisal.