In this video, we will understand Straight Line Depreciation Method definition with its calculation along with practical example.

𝐒𝐭𝐫𝐚𝐢𝐠𝐡𝐭 𝐋𝐢𝐧𝐞 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 𝐌𝐞𝐭𝐡𝐨𝐝 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧
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Depreciation is an bookkeeping technique for asset cost distribution over a timespan to treat the value of an asset obtained by the firm.

𝐒𝐭𝐫𝐚𝐢𝐠𝐡𝐭 𝐋𝐢𝐧𝐞 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 𝐌𝐞𝐭𝐡𝐨𝐝 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Straight Line Depreciation Formula = (Cost of the Asset - Salvage Cost) * Depreciation Rate

OR

Straight Line Depreciation Formula = (Cost of the Asset - Salvage Cost) / Useful Life

𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐒𝐭𝐫𝐚𝐢𝐠𝐡𝐭 𝐋𝐢𝐧𝐞 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 𝐌𝐞𝐭𝐡𝐨𝐝
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Assume a business has purchased a machine for $ 20,000. They have estimated the useful life of the machine to be 6 years with a salvage value of $ 2,000.

Now, as per the straight line method of depreciation:

Cost of the asset = $ 20,000
Salvage Value = $ 2000

Therefore, Total Depreciation Cost will be,

Total Depreciation Cost = Cost of asset – Salvage Value
= 20000 – 2000 = $ 18000

Useful life of the asset = 6 years

By using above formula we get,

Annual depreciation Cost = (Cost of Asset – Salvage Cost)/Useful Life = 18000/6 = $ 3000

𝐌𝐞𝐫𝐢𝐭𝐬 𝐨𝐟 𝐒𝐭𝐫𝐚𝐢𝐠𝐡𝐭 𝐋𝐢𝐧𝐞 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 𝐌𝐞𝐭𝐡𝐨𝐝
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#1 - It is easiest approach of depreciating an asset.
#2 - It does not include hard computation hence, chances of mistakes are less.
#3 - It is most commonly used and easy to understand method.

If you want to know more about 𝐒𝐭𝐫𝐚𝐢𝐠𝐡𝐭 𝐋𝐢𝐧𝐞 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧 𝐌𝐞𝐭𝐡𝐨𝐝 you can visit the 𝐥𝐢𝐧𝐤 𝐩𝐫𝐨𝐯𝐢𝐝𝐞𝐝 𝐡𝐞𝐫𝐞:- [ Ссылка ]

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