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
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