What Is Depreciation? How Is It Calculated?

Depreciation is the systematic way a business reflects the loss in value of its tangible and intangible fixed assets over their economic life in its accounting records. When you buy a machine, its value declines over the years due to use, wear, and technological obsolescence. Depreciation is the core accounting practice that lets you distribute this loss in value fairly across accounting periods.

For businesses, depreciation is not just an accounting entry — it is a cornerstone of tax planning, cost analysis, and investment decisions. In this guide, we take a detailed look at what depreciation is, how it's calculated, where it fits into Turkish tax law, and why it matters critically for your business.

Why Does Depreciation Matter?

When businesses buy fixed assets, charging the entire expense to a single period distorts the financial statements. For example, if you buy a production machine worth 500,000 TRY and write off the full amount as an expense in the year of purchase, that year's profit drops unrealistically — while in subsequent years, even though the machine is still in use, no related expense appears at all.

Depreciation solves this problem and delivers the following benefits:

• Cost allocation across periods: The cost of the asset is spread across all the periods in which it generates revenue.
• Realistic financial statements: The balance sheet and income statement reflect the business's true financial position.
• Tax advantage: Depreciation expenses are deducted from the tax base, reducing the business's tax burden.
• Investment decisions: Knowing the current value of assets supports replacement and investment decisions.
• Cash flow management: Since depreciation is a non-cash expense, it's an important indicator in cash flow planning.

Which Assets Are Depreciated?

For an asset to be depreciable, it must meet certain conditions:

• It must be usable for longer than one year: Short-lived materials are expensed directly.
• It must be subject to wear, tear, or obsolescence: Assets that don't lose value, such as land, are not depreciated.
• It must be used in business operations: Assets held for investment purposes are subject to different valuation rules.

Examples of depreciable assets:

What Are the Depreciation Calculation Methods?

There are three main depreciation methods commonly used in Turkey. Each method has its own advantages and areas of application.

1. Straight-Line Depreciation Method

This is the most widely used method. The cost of the asset is spread in equal amounts as an expense over its useful life.

Formula:

Annual Depreciation Amount = Cost / Useful Life (Years)
Depreciation Rate = 1 / Useful Life × 100

Example calculation:

A business purchases a commercial vehicle for 300,000 TRY. The vehicle's useful life is 5 years.

• Depreciation rate: 1 / 5 = 20%
• Annual depreciation amount: 300,000 × 0.20 = 60,000 TRY

This method is ideal for assets whose loss in value stays relatively constant over the years, such as office furniture, buildings, and fixtures.

2. Declining Balance (Accelerated) Depreciation Method

In this method, the depreciation rate is double the straight-line rate, and the calculation is applied to the net book value each year. This results in a higher depreciation expense in the early years and a lower one in the later years.

Formula:

Depreciation Rate = Straight-Line Rate × 2 (capped at 50%)
Annual Depreciation = Net Book Value × Depreciation Rate

Example calculation:

For the same 300,000 TRY commercial vehicle, using the declining balance method:

• Straight-line rate: 20% → Declining balance rate: 40%

Note: In the final year, the entire remaining net book value is set aside as depreciation. This method is preferred for technology products and other assets that lose value quickly.

3. Units-of-Production Depreciation Method

In this method, the depreciation amount is determined based on the asset's production capacity and actual usage volume.

Formula:

Depreciation per Unit = Cost / Total Estimated Production Capacity
Period Depreciation = Depreciation per Unit × Actual Production in the Period

Example calculation:

A machine costing 200,000 TRY has a total production capacity of 1,000,000 units.

• Depreciation per unit: 200,000 / 1,000,000 = 0.20 TRY/unit
• Year 1 production: 250,000 units → Depreciation: 250,000 × 0.20 = 50,000 TRY
• Year 2 production: 300,000 units → Depreciation: 300,000 × 0.20 = 60,000 TRY

This method gives the fairest result for machines and molds that operate based on production volume.

How Are Useful Life Periods Determined?

In Turkey, the useful life periods and depreciation rates for depreciable assets are determined by the General Communiqué on Depreciation published by the Ministry of Treasury and Finance. Under Article 315 of the Tax Procedure Law (VUK), businesses are required to comply with the periods specified in this communiqué.

Commonly used useful life periods:

You can find the current useful life table on the official website of the Revenue Administration.

How Is Depreciation Applied Under Turkish Tax Law?

Depreciation is regulated in Turkish tax law primarily under the articles of the Tax Procedure Law (VUK).

Basic Rules

• VUK Article 313: Assets valued below a certain threshold (check the current amount for 2026 in the Revenue Administration's announcements) may be expensed directly; those above it are subject to depreciation.
• VUK Article 315: Depreciation rates are determined and announced by the Ministry.
• VUK Article 320: Sets out the principles of the straight-line depreciation method.
• VUK Article 321: Regulates the principles of the declining balance method.
• Pro-rata depreciation: For passenger automobiles, depreciation is calculated on a daily basis from the date of purchase. The amount not set aside in the first year due to this proration is added at the end of the useful life.

Changing Methods

Businesses can switch from the declining balance method to the straight-line method. However, switching from the straight-line method to the declining balance method is not possible. For this reason, the choice of method should be made carefully at the outset.

How Are Depreciation Accounting Entries Recorded?

Depreciation entries are recorded according to the Uniform Chart of Accounts as follows:

Period-End Depreciation Entry

Debit: 770 – General Administrative Expenses       60,000 TRY
   Credit: 257 – Accumulated Depreciation               60,000 TRY

• Account 770 can also be used as account 730 (General Production Expenses), 750 (Research and Development Expenses), or 760 (Marketing, Sales and Distribution Expenses), depending on the nature of the expense.
• Account 257 shows the accumulated depreciation as a contra account to the relevant fixed asset account (253, 254, 255, etc.).

Sale or Disposal of the Asset

Sale of a fully depreciated asset at its scrap value:

Debit: 100 – Cash                          5,000 TRY
Debit: 257 – Accumulated Depreciation      300,000 TRY
   Credit: 254 – Vehicles                       300,000 TRY
   Credit: 679 – Other Extraordinary Income      5,000 TRY

What Mistakes Do Businesses Make in Depreciation Tracking?

Many businesses, especially SMEs, make recurring mistakes in managing depreciation:

• Manual tracking risks: Calculations done in spreadsheets become increasingly complex over time, and error rates rise.
• Failing to track useful-life updates: The Ministry periodically updates useful life periods; continuing with outdated rates can lead to tax problems.
• Errors in pro-rata depreciation calculations: Particularly for passenger vehicles, incorrect day-count calculations can cause issues during tax audits.
• Failing to keep the asset inventory up to date: Not writing off assets that have been sold, scrapped, or lost inflates the balance sheet.
• Lack of planning in method selection: Choosing a method without considering the tax advantage negatively affects the business's cash flow.

What Difference Do Digital Solutions Make in Depreciation Tracking?

Today, managing fixed asset and depreciation tracking through manual processes causes businesses to waste time and make errors. Digital spend and expense management solutions significantly simplify these processes:

• Automatic calculation: Once asset information is entered, depreciation amounts are calculated automatically.
• Real-time reporting: Net book values, accumulated depreciation, and remaining useful lives are displayed on a single screen.
• Regulatory compliance: Useful life periods and rates are automatically updated according to current regulations.
• Integrated accounting: Depreciation entries work integrated with the accounting system, eliminating duplicate data entry.
• Audit readiness: All asset movements are kept on record, keeping the business prepared for tax audits.

Frequently Asked Questions

Is it mandatory to set aside depreciation?

Under Turkish tax law, setting aside depreciation is an optional practice. However, depreciation not set aside cannot be carried forward to subsequent years — that period's tax advantage is simply lost. For this reason, in practice, all businesses are advised to set aside depreciation.

Is depreciation set aside for land and plots?

No. Land and plots are not subject to depreciation because they are not subject to wear, tear, or obsolescence. However, structures built on the land (buildings, fences, roads, etc.) are within the scope of depreciation.

Can a business switch from the declining balance method to the straight-line method?

Yes, switching from the declining balance method to the straight-line depreciation method is always possible. When the switch is made, the remaining net book value is distributed equally over the remaining useful life. However, switching from the straight-line method to the declining balance method is not possible.

How is depreciation set aside for second-hand assets?

The useful life periods determined by the Ministry also apply to second-hand assets. Having been used previously does not shorten the useful life; depreciation is set aside based on the full period specified in the communiqué, not on the remaining life.

Is depreciation expense a cash outflow?

No. Depreciation is a non-cash expense. The cash outflow occurs at the time the asset is purchased. Depreciation is merely an accounting entry that allocates this cost across periods. Because of this feature, depreciation needs to be evaluated separately in cash flow analyses.

What happens if an asset is sold before its depreciation period ends?

When the asset is sold, the accumulated depreciation and the sale price are compared. If the sale price is higher than the net book value, a gain arises; if lower, a loss arises. This gain or loss is reported on the income statement.

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