Straight Line Depreciation
Under the straight line depreciation method, recognize depreciation expense evenly over the estimated useful life of the asset.
Formula:
a. Compute the straight-line depreciation rate as
1
-------------------------
Estimated useful life
b. Multiply the depreciation rate by the cost less estimated salvage value.
Straight Line Depreciation Example
ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life of five years. The straight-line depreciation calculation is:
Step 1: 1 / 5 years = 20% depreciation per year
Step 2: 20% x ($100,000 cost - $10,000 salvage value) = $18,000 annual depreciation
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