Straight line depreciation
Also called: Straight line method
What is straight line depreciation?
The straight line method charges the same amount in every year of the asset's useful life.
The yearly charge is cost less residual value, divided by the useful life in years.
Residual value is what the business expects to sell the asset for at the end of its useful life.
Example
A coffee machine costs £5,000.00. It has a useful life of 5 years and a residual value of £500.00. The yearly charge is £4,500.00 divided by 5, which is £900.00.
Why it matters
It suits assets that give the same use every year, such as shop fittings. Once a method is chosen for a kind of asset, the business keeps to it from year to year.
Practise it
Module, 5 rooms, PremiumDepreciation
See the first roomHow to work out straight line depreciation
Ledger Drill is practice, not tax or accounting advice. If this looks wrong, tell us at [email protected].