Xero’s free depreciation calculator

FAQs on Xero’s depreciation calculator

What's the difference between straight-line and reducing balance depreciation?

Straight-line spreads cost evenly over useful life—a $10,000 asset over 5 years loses $2,000 annually. Reducing balance applies fixed percentage to remaining value yearly, creating higher early depreciation. Most businesses use reducing balance for vehicles to maximize early tax deductions, straight-line for furniture for consistent expense recognition.

Straight-line spreads cost evenly over useful life—a $10,000 asset over 5 years loses $2,000 annually. Reducing balance applies fixed percentage to remaining value yearly, creating higher early depreciation. Most businesses use reducing balance for vehicles to maximize early tax deductions, straight-line for furniture for consistent expense recognition.

How do I handle depreciation when selling an asset?

Calculate gain or loss by comparing sale price to book value (original cost minus accumulated depreciation). Selling a $15,000 van with $9,000 depreciation for $7,000 creates $1,000 taxable profit. Xero automatically calculates disposal gains/losses and creates necessary journal entries when recording asset sales.

Calculate gain or loss by comparing sale price to book value (original cost minus accumulated depreciation). Selling a $15,000 van with $9,000 depreciation for $7,000 creates $1,000 taxable profit. Xero automatically calculates disposal gains/losses and creates necessary journal entries when recording asset sales.

Can I change depreciation methods after starting?

Once chosen, tax authorities expect consistency. Changing methods requires justification and approval. However, different assets can use different methods—vehicles might use reducing balance while furniture uses straight-line. Xero applies appropriate methods by asset type and maintains consistent calculations.

Once chosen, tax authorities expect consistency. Changing methods requires justification and approval. However, different assets can use different methods—vehicles might use reducing balance while furniture uses straight-line. Xero applies appropriate methods by asset type and maintains consistent calculations.

What documentation do I need for tax authority depreciation claims?

Tax authorities require asset register showing purchase date, cost, method, useful life, and accumulated depreciation. Also need purchase receipts, depreciation schedules, and disposal records. Xero maintains all required documentation automatically, generating audit-ready reports satisfying tax requirements.

Tax authorities require asset register showing purchase date, cost, method, useful life, and accumulated depreciation. Also need purchase receipts, depreciation schedules, and disposal records. Xero maintains all required documentation automatically, generating audit-ready reports satisfying tax requirements.

How does depreciation affect my cash flow?

Depreciation is a non-cash expense—reduces taxable profit without requiring cash payment. $5,000 annual depreciation reduces tax bill (saving cash) without affecting bank balance directly. This makes depreciation valuable for tax planning, lowering obligations while preserving cash for operations and growth.

Depreciation is a non-cash expense—reduces taxable profit without requiring cash payment. $5,000 annual depreciation reduces tax bill (saving cash) without affecting bank balance directly. This makes depreciation valuable for tax planning, lowering obligations while preserving cash for operations and growth.