2.2.1.3.1. Straight-Line Depreciation
Straight-line depreciation is the oldest and simplest method. To calculate it, you simply divide the asset’s cost less its salvage value by its recovery period.
depreciation expense = cost-salvage value / recovery period
This allocation assumes equal usefulness over the economic life of the asset, and depreciation is expensed at the same amount each year.
Example: A five-year asset costs $100,000. Because the asset has no alternative use, it has no salvage value. Straight-line depreciation is $20,000 each year until the asset is fully depreciated.
|
Straight-Line Depreciation |
|||
|
End of Year |
Book Value |
Calculation |
Depreciation |
|
0 |
$100,000 |
- |
- |
|
1 |
$80,000 |
$100,000 / 5 |
$20,000 |
|
2 |
$60,000 |
$100,000 / 5 |
$20,000 |
|
3 |
$40,000 |
$100,000 / 5 |
$20,000 |
|
4 |
$20,000 |
$100,000 / 5 |
$20,000 |
|
5 |
$0 |
$100,000 / 5 |
$20,000 |
|
Total |
- |
- |
$100,000 |