1. What Is Straight-line Depreciation?

Straight-line depreciation is the simplest and most commonly used method of allocating the cost of a fixed asset over its useful life. It assumes the asset will lose the same amount of value each year.

2. How Does The Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( Cost \) — Original cost of the asset (USD)
• \( Salvage \) — Estimated salvage value at end of useful life (USD)
• \( Life \) — Useful life of the asset in years

Explanation: This method evenly distributes the depreciable amount (cost minus salvage value) over the asset's useful life.

3. Importance Of Depreciation Calculation

Details: Accurate depreciation calculation is essential for proper financial reporting, tax calculations, and determining the true cost of asset ownership over time.

4. Using The Calculator

Tips: Enter the original cost in USD, estimated salvage value in USD, and useful life in years. All values must be valid (cost > 0, salvage ≥ 0, life ≥ 1, cost ≥ salvage).

5. Frequently Asked Questions (FAQ)

Q1: When should straight-line depreciation be used?
A: This method is appropriate when the asset's economic benefits are expected to be realized evenly over its useful life.

Q2: What is considered a reasonable salvage value?
A: Salvage value is typically estimated as the expected resale or scrap value at the end of the asset's useful life. It's often a small percentage of the original cost.

Q3: How is useful life determined?
A: Useful life is based on the asset's expected service life, which may be determined by industry standards, manufacturer recommendations, or company experience.

Q4: Are there limitations to straight-line depreciation?
A: This method may not accurately reflect actual asset usage patterns if the asset deteriorates more rapidly in early years or has increasing maintenance costs over time.

Q5: How does depreciation affect financial statements?
A: Depreciation expense reduces net income on the income statement and accumulates as accumulated depreciation on the balance sheet, reducing the book value of assets.