Straight Line Method

The “Straight Line Method” is a method of Depreciation used to allocate the cost of an Asset evenly over its useful life. Under this method, the same amount of Depreciation expense is charged each year, which simplifies accounting and Budgeting.

Formula: Depreciation Expense = (Cost of Asset – Salvage Value) / Useful Life

Example 1: A company purchases a machine for $10,000, expects it to last 5 years, and estimates a salvage value of $1,000. The annual Depreciation would be calculated as follows:

• Depreciation Expense = ($10,000 – $1,000) / 5 = $1,800

Example 2: A vehicle is bought for $20,000 with a useful life of 10 years and a salvage value of $2,000. The annual Depreciation would be:

• Depreciation Expense = ($20,000 – $2,000) / 10 = $1,800

Cases:

• Commonly used for Assets like buildings, furniture, and machinery.
• Preferred for its simplicity, especially when the Asset’s usage does not vary significantly from year to year.