What is Straight-Line Depreciation?
Straight-line depreciation spreads the cost of an asset evenly across its useful life, giving a constant depreciation expense each year. It's the simplest and most widely used depreciation method in accounting.
Straight-line depreciation allocates an asset's depreciable cost equally over its useful life: Depreciation Expense = (Cost − Salvage Value) / Useful Life.
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Step-by-step worked examples
A delivery van costs $30,000, has a $5,000 salvage value, and a 5-year useful life. Find the annual depreciation expense.
Depreciable cost = 30,000 − 5,000 = 25,000 Annual depreciation = 25,000 / 5 = $5,000 per year
Office equipment costs $8,000 with no salvage value and a 4-year life. What is the yearly depreciation?
Depreciable cost = 8,000 − 0 = 8,000 Annual depreciation = 8,000 / 4 = $2,000 per year
A machine costs $50,000, salvage value $10,000, useful life 8 years. Find the book value after 3 years.
Annual depreciation = (50,000 − 10,000)/8 = 5,000 Accumulated depreciation after 3 years = 5,000 × 3 = 15,000 Book value = 50,000 − 15,000 = $35,000
Flashcards
Quick quiz
Q1.A machine costs $12,000, has a $2,000 salvage value, and a 5-year life. What is annual depreciation?
Q2.Which stays constant every year under straight-line depreciation?
Q3.An asset with no salvage value costing $9,000 over 3 years depreciates how much per year?
Q4.What does 'useful life' represent in the formula?
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Common mistakes
Forgetting to subtract salvage value before dividing. — Correct: Always use depreciable cost (Cost − Salvage Value), not the full cost.
Assuming depreciation expense changes each year. — Correct: Straight-line depreciation is the same fixed amount every year.
Confusing useful life with the asset's total lifespan. — Correct: Useful life is the period the business expects to use the asset productively, which may be shorter than its physical life.
Depreciating an asset below its salvage value. — Correct: Book value should never fall below the estimated salvage value.
FAQ
What is straight-line depreciation?
It's a method that spreads an asset's cost evenly over its useful life, so the depreciation expense is the same each year.
What is the straight-line depreciation formula?
Depreciation Expense = (Cost − Salvage Value) / Useful Life.
How do you calculate straight-line depreciation?
Subtract the salvage value from the cost to get depreciable cost, then divide by the useful life in years.
What are examples of straight-line depreciation?
A $30,000 van with $5,000 salvage over 5 years depreciates $5,000 per year; office furniture and buildings are also commonly depreciated this way.