Straight-line depreciation

Definition

Straight-line depreciation is a method of allocating the cost of a tangible asset over its useful life in equal annual amounts. It is the simplest and most commonly used depreciation method.

5 Must Know Facts For Your Next Test

1. Straight-line depreciation results in an equal amount of depreciation expense each year.
2. The formula for straight-line depreciation is (Cost - Salvage Value) / Useful Life.
3. It is commonly used for financial reporting purposes due to its simplicity.
4. Accumulated depreciation increases by the same amount each year under this method.
5. At the end of the asset’s useful life, its book value equals its salvage value.

Review Questions

• What is the formula for calculating straight-line depreciation?
• Why might a company choose to use straight-line depreciation over other methods?
• How does straight-line depreciation affect the book value of an asset over time?

Related terms

Salvage Value:

The estimated residual value of an asset at the end of its useful life.

Useful Life:

The period over which an asset is expected to be usable for its intended purpose.

Accumulated Depreciation:

The total amount of depreciation expense that has been recorded against an asset since it was acquired.