A depreciation schedule is a table that spreads the cost of a long-life asset, such as a crane, an excavator, or a fleet vehicle, across the years it is expected to be in use, rather than expensing the full purchase price in the year it was bought. For each period it shows how much value the asset loses, what it is still worth on the books, and how that expense can be allocated to the jobs that used the equipment. The three methods used most often are straight-line, declining balance, and units of production; the method changes how fast the expense is recognised, not how much total expense there is.
A Worked Example
An excavator is bought for $100,000. As an illustrative example, assume a 5-year useful life and a $20,000 salvage value. Under straight-line depreciation, the annual charge is ($100,000 minus $20,000) divided by 5, or $16,000 a year:
| Year | Opening value | Depreciation | Closing value |
|---|---|---|---|
| 1 | $100,000 | $16,000 | $84,000 |
| 2 | $84,000 | $16,000 | $68,000 |
| 3 | $68,000 | $16,000 | $52,000 |
| 4 | $52,000 | $16,000 | $36,000 |
| 5 | $36,000 | $16,000 | $20,000 |
By the end of year 5, the excavator's book value lands on the $20,000 salvage value assumed at the start, and the full $80,000 of depreciable cost has been recognised in equal annual pieces.
Declining balance depreciation would front-load more of that $80,000 into the early years instead of spreading it evenly, which suits equipment that loses most of its value and usefulness soon after purchase, such as some vehicles and electronics.
Depreciation on the Cost Report
When equipment is used on a specific job rather than sitting in a general fleet, the depreciation for the time it was on site is allocated to that project's cost report as an equipment cost, usually through an internal hourly or daily rate built from the depreciation schedule, rather than as a lump sum at the point of purchase.
Related Terms
Depreciation schedule connects to Capital Expenditure (CapEx) (CapEx), Overhead Costs, Overhead Allocation, and Expense Allocation.
FAQ
How is depreciation different from maintenance costs?
Depreciation spreads the asset's purchase cost over its useful life. Maintenance is the ongoing cost of keeping the asset running. The two are tracked separately even though both relate to owning equipment.
Which depreciation method should a contractor use?
That depends on the asset and the company's accounting policy. Straight-line is the simplest and most widely used, but the right method, and its tax treatment, varies by jurisdiction and is worth confirming with an accountant.
Can depreciation affect project costing?
Yes. When a company charges equipment use to a job at an internal rate built from its depreciation schedule, that charge lands in the project's cost report as an equipment cost, alongside labor, materials, and subcontracts.