Straight-line depreciation is one of the simplest and most commonly used methods for calculating the depreciation of an asset over its useful life. This method spreads the cost of the asset evenly across its useful life, resulting in a consistent depreciation expense each year.

Key Features:

1. Equal Expense: The same amount is deducted from the asset’s value each year until it reaches its salvage value.

2. Salvage Value: This is the estimated residual value of the asset at the end of its useful life.

3. Formula:

   Depreciation Expense=Cost of Asset−Salvage ValueUseful Life\text{Depreciation Expense} = \frac{\text{Cost of Asset} – \text{Salvage Value}}{\text{Useful Life}}

Calculation Steps:

1. Determine the Initial Cost: Identify the purchase price of the asset.

2. Estimate the Salvage Value: Predict how much the asset will be worth at the end of its useful life.

3. Determine Useful Life: Establish how long the asset is expected to be in use.

4. Calculate Annual Depreciation Expense using the formula provided.

Example:

• Initial Cost of Asset: $10,000
• Salvage Value: $1,000
• Useful Life: 5 years

Calculation:

1. Depreciation Expense:Depreciation Expense=10,000−1,0005=9,0005=1,800\text{Depreciation Expense} = \frac{10,000 – 1,000}{5} = \frac{9,000}{5} = 1,800

This means that each year, $1,800 will be recorded as a depreciation expense for this asset.

Yearly Depreciation Schedule:

• Year 1: $1,800
• Year 2: $1,800
• Year 3: $1,800
• Year 4: $1,800
• Year 5: $1,800

At the end of 5 years, the total depreciation will equal $9,000, bringing the book value down to the salvage value of $1,000.

This method is straightforward and easy to apply, making it a popular choice for businesses and individuals alike.