Straight-Line Method of Depreciation

Definition: Straight-Line Method of Depreciation is the most often used method for calculating depreciation. In this method, a company will charge the same amount to depreciation each year over the useful life of the asset.

Formula:
Annual depreciation = (Cost of Fixed Asset - Residual Value)/ Useful life of asset

Example:
ABC Company purchased a motor vehicle at a cost of $20,000. The motor vehicle depreciates over 5 years and will have a salvage value of $5000. Calculate the annual depreciation using the Straight-Line Method.

Answer:
Depreciation = (20000 - 5000)/5 = $3,000
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