Straight Line Depreciation Method

Straight-line depreciation is the simplest and most often used method. In straight-line depreciation, you estimate the asset's salvage value at the end of its useful life (the period during which it is used to generate revenues), then expense a portion of the original cost in equal amounts over that period. The residual value (or scrap value) is an estimate of the asset's value when you sell or dispose it. The residual value may be zero.

Annual Depreciation Expense = (Cost of Fixed Asset - Scrap Value) divided by Life span

For example, a vehicle that depreciates over five years, is purchased at a cost of US$17,000, with a residual value of US$2000, will depreciate at US$3,000 per year: ($17,000 - $2,000) / 5 years = $3,000 or ($17,000 - $2,000) / 60 months = $250. In other words, you divide the depreciable cost of the asset by the number of years or months of its useful life.

General Notices