Straight line depreciation is the most straight forward and the most common method of depreciation. Most accounting departments choose this method due to its simplicity and the fact that most fixed assets’ usefulness are consumed at a fairly even rate. If you buy a car, even though the fair market value declines most sharply in the first year, you probably are not planning on selling it anyway. The car still serves its function of getting you from point A to point B in the same way in year 5 as it does in year 1.
See a table comparing the different depreciation amounts using different depreciation methods.
To return the value of one period of straight line depreciation expense.
cost– Acquistion cost of the asset. Includes purchase price and costs associated with its acquisition such as freight and sales tax.
salvage– Amount that you expect to receive in exchange for the asset at the end of its useful life. Typically, this is zero. However, an example of a case where this not zero is the expected trade-in value of an automobile.
life– Length of time that the asset is expect to be in service given in number of periods.
An automobile is purchased for $40,000 that is expected to last 36 months and be traded-in for $4,000.
|3||$4,000||salvage||money back at end of life|
|4||36||life||number of periods for useful life|
||Depreciation expense each period||$1,000|
A laptop computer is purchased for €3,000 that is expected to last 24 months and have no value after the end of the two years.
||Depreciation expense each period||€83.33|