How depreciation is calculated
The three depreciation methods with worked AED figures, how residual value and the start month work, and how rounding is handled.
Before you begin
Depreciation is planned when an asset is capitalised and shown on the asset record under Schedule, one table per book. The financial book posts to the ledger; tax and management books show their own figures and post nothing. This article explains the figures you will see.
The start month
The category's Depreciate from setting decides the first row. For an asset put to use on 15/10/2026, The month it is put to use starts in October 2026 and The month after starts in November 2026. For an opening-balance asset, the months already depreciated count as used and the schedule starts the month after the last month covered.
Residual value
If you leave Residual value blank, it is the cost times the category's residual percentage. Depreciation never takes the carrying amount below the residual. The residual cannot exceed the cost.
Straight line
Each month is (cost - residual) divided by the number of months. The last month takes the rounding so the total is exact.
| Cost | Residual | Life | Monthly charge |
|---|---|---|---|
| AED 1,200.00 | 0.00 | 12 | AED 100.00 |
| AED 1,200.00 | 120.00 | 12 | AED 90.00 (total 1,080.00; ends at 120.00) |
| AED 1,000.00 | 0.00 | 12 | 11 rows of AED 83.33 and a last row of AED 83.37 |
Declining balance
Each month is the carrying amount times the annual rate divided by 12. For cost AED 1,000.00 at 24% a year: month 1 is 1,000.00 x 24% / 12 = AED 20.00; month 2 is 980.00 x 2% = AED 19.60; month 3 is 960.40 x 2% = AED 19.21.
Without a switch to straight line, the last month lands on the residual, so month 12 of a 12-month life is a large catch-up of AED 800.73 for this asset. With the switch to straight line on, the method changes to straight line in the month when that would be larger. The switch is a setting available through the API only; it is not on the asset or category screen.
A declining-balance asset never goes below its residual.
Units of production
Each month's charge is (carrying amount - residual) x units used in the month / units still expected. For cost AED 1,000.00, no residual and 1,000 units expected, 100 units in July gives AED 100.00. A month with no usage has no row.
Units used are entered through the API action only. The asset screen has no field for them, so a units-of-production asset shows an empty schedule from the screen.
When terms change
An estimate change keeps the posted months and re-plans the rest. An impairment lowers the carrying amount and re-plans the remaining rows to the new value. A partial disposal re-plans the remainder. See Transfer, impair or revise an asset.
What happens next
A depreciation run posts the planned rows month by month. See Run monthly depreciation.
Good to know
- Life must be a whole number of months from 1 to 1200.
- Rates are 0 to 100.
- A month is the smallest step. Depreciation for a disposal month is posted for the whole month; there is no daily proration.