See Also:
Depreciation
Accelerated Method of Depreciation
Double Declining Method Depreciation
Amortization
Fixed Assets - NonCurrent Assets
Straight-line DepreciationThe straight-line method of depreciation is the simplest method of depreciation. Using this method, the cost of a tangible
asset is expensed by equal amounts each period over its useful life. The idea is that the value of the assets declines at a constant rate over its useful life. This method is approved by
GAAP.
Straight-line Depreciation FormulaTo calculate straight-line depreciation for an asset, you need the asset’s purchase price, salvage value, and useful life. The salvage value is the amount the asset is worth at the end of its useful life. The depreciable base is the purchase price minus the salvage value. Depreciation continues until the asset value declines to its salvage value.
First, calculate the depreciable base. Next, divide the depreciable base by the useful life. The result is the depreciation expense used for each period until the value of the asset declines to its salvage value.
Depreciable Base = Purchase Price – Salvage ValueDepreciation Expense = Depreciable Base / Useful Life For example, if an asset was purchased for $100, its salvage value is $0, and its useful life is 10 years, then the annual depreciation expense for the asset would be $10 (10 = 100/10). After 10 years the asset will have depreciated to its salvage value, in this example $0, and depreciation for the asset will no longer occur.
Straight line Depreciation RateThe depreciation rate is the rate at which an asset is depreciated each period. To calculate the depreciation rate, divide the depreciation expense by the depreciable base. To find the depreciation expense using the deprecation rate, multiply the depreciable base by the depreciation rate.
Depreciation Rate = Depreciation Expense / Depreciable Base Depreciation Expense = Depreciation Rate x Depreciable BaseIn the above example, the depreciation rate would be 10% (10% = 10/100).