How to calculate straight line depreciation?


Quick Answer

Straight line depreciation is equal to the cost of something minus the salvage value of the item divided by the life in number of periods of the item. This method allows the depreciation of an asset to be charged in a constant way throughout the entire life of the asset.

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Full Answer

The residual salvageable value of the asset can be subtracted from the cost to ensure that the amount of money that is coming from the asset is appropriately accounted for. The lifespan of the asset in periods is only relatable to the time that the asset can be officially used. It does not refer to the amount of time that the asset was used prior to being obtained.

An example of straight line depreciation is when a car is purchased. If the car is purchased for $25,000 but is expected to depreciate by $10,000 in the next 6 years. The number of residual value in the vehicle is $15,000. That can then be divided by the 6 years that are left in the depreciable life of the vehicle. The straight line depreciation of the vehicle after 6 years would be $2,500. The straight line depreciation of most assets is generally much lower than the original cost of the asset.

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