Straight line depreciation

Straight line depreciation is a common method of depreciation where the value of a fixed asset is reduced over its useful life. It's used to reduce the carrying amount of a fixed asset over its useful life. With straight line depreciation, an asset's cost is depreciated the same amount for each accounting period.

1. How do you calculate straight line depreciation?
2. What is an example of straight line depreciation?
3. What is the main characteristic of straight line depreciation?
4. What is meant by straight line method?
5. How many years is straight line depreciation?
6. What are the 3 depreciation methods?
7. When should Straight line depreciation be used?
8. Why is the straight line method of depreciation called straight line?
9. What are the disadvantages of straight line depreciation?
10. How do you record a straight line depreciation journal entry?
11. What is the other name of straight line method?

How do you calculate straight line depreciation?

How do you calculate straight line depreciation? To calculate depreciation using a straight line basis, simply divide net price (purchase price less the salvage price) by the number of useful years of life the asset has.

What is an example of straight line depreciation?

Example of Straight Line Depreciation

Purchase cost of $60,000 – estimated salvage value of $10,000 = Depreciable asset cost of $50,000. 1 / 5-year useful life = 20% depreciation rate per year. 20% depreciation rate x $50,000 depreciable asset cost = $10,000 annual depreciation.

What is the main characteristic of straight line depreciation?

Straight line depreciation is when an asset is depreciated in equal installments until it gets to its salvage value. An asset's salvage value is the estimated amount of the asset's worth when it gets to the end of its useful life.

What is meant by straight line method?

Definition of straight-line method

: a method of calculating periodic depreciation that involves subtraction of the scrap value from the cost of a depreciable asset and division of the resultant figure by the anticipated number of periods of useful life of the asset — compare compound-interest method.

How many years is straight line depreciation?

Straight-line depreciation in action

(Five years is the period over which the IRS says you have to depreciate computers.)

What are the 3 depreciation methods?

Your intermediate accounting textbook discusses a few different methods of depreciation. Three are based on time: straight-line, declining-balance, and sum-of-the-years' digits. The last, units-of-production, is based on actual physical usage of the fixed asset.

When should Straight line depreciation be used?

Straight line depreciation is properly used when an asset's value declines evenly over time. This would often be a piece of machinery that you expect to use until you scrap it.

Why is the straight line method of depreciation called straight line?

Why is the straight-line method of depreciation called "straight-line"? Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.

What are the disadvantages of straight line depreciation?

Straight-line depreciation does not account for the loss of efficiency or the increase in repair expenses over the years and is, therefore, not as suitable for costly assets such as plant and equipment. The functional life span of some assets cannot clearly be estimated.

How do you record a straight line depreciation journal entry?

In accounting, the straight-line depreciation is recorded as a credit to the accumulated depreciation account and as a debit for depreciating the expense account.

What is the other name of straight line method?

Other names used for straight-line method are original cost method or fixed installment method.