Straight Line Method of Depreciation is a method of calculating depreciation of an asset where the actual cost of the asset is depreciated over the entire useful life of the asset. In order to calculate depreciation by this method the difference between the cost of asset and its reclaim value is calculated first and then it is divided by the total number of years during which this asset is expected to be used. The reclaim value of asset is also called its residual value or the salvage value. This method is one of the most common and simple method to calculate depreciation and most commonly used in accounting. Formula of Straight Line Basis can be shown as follows:-
Depreciation= Cost of Asset – Salvage Value of Asset/ Useful Life of Asset in number of Accounting Periods
In this equation the cost of asset is the sum of the capital and any kind of expenditure made over the asset. The salvage value or the residual value of the asset is the scrap value that is spanned over the years for which asset can be usefully used by the business. The useful life span of the asset can be calculated as the number of accounting periods for which the asset is available for use to the accounting period when the use of this asset is terminated. Straight line method of depreciation is also called straight line method of amortization when intangible assets are in question.
Other Related Accounting Articles: