Straight line method of depreciation

It’s the simplest amd most popular methods of calcuating depreciation. Under the straight line method of depreciation, the depreciation charge is constant over the life of the asset. And we need know three pieces of information:

1. the original (historical) cost of the asset
2. an estimate of its useful life to the business
3. an estimate of its residual value at the end of its useful life.

You should according to the the orginal, the residual value, and the estimated useful value to calculate the annual depreciation charge.

For example, a company puerchased a car on 1 January 2008 at a cost of $24,000. The company estimates that its useful life is four years, after which he will trade it in for $4,000. The annual depreciation charge is to be calculated using the straight line method.

Depreciation charge = ($24,000 – $4,000)/4= $5,000 p.a.

If the car had been puracased on 30 september 2008, we should only charge three months’ depreciation in 2009. The depreciation charged should be:

Related posts:

1. Methods of calcuating depreciation
2. Reducing balance method
3. Revaluation method
4. Property, plant and equipment
5. Sum of the digits method