1. What is Straight-Line Depreciation?

Straight-line depreciation is the simplest and most commonly used method for allocating the cost of a capital 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:

• \( \text{Cost} \) — Original purchase price of the asset
• \( \text{Salvage Value} \) — Estimated resale value at end of useful life
• \( \text{Useful Life} \) — Expected number of years the asset will be productive

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

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is essential for financial reporting, tax purposes, and business planning. It helps companies allocate the cost of assets appropriately over time and determine the true cost of doing business.

4. Using the Calculator

Tips: Enter the original cost of the asset, estimated salvage value, and expected useful life in years. All values must be valid (cost ≥ salvage value, useful life ≥ 1 year).

5. Frequently Asked Questions (FAQ)

Q1: What types of assets use straight-line depreciation?
A: This method is commonly used for buildings, office equipment, vehicles, and machinery where the asset's usefulness declines evenly over time.

Q2: How does salvage value affect depreciation?
A: A higher salvage value reduces the annual depreciation expense because there's less cost to allocate over the asset's life.

Q3: Can the useful life be changed after purchase?
A: Yes, if there's a significant change in the expected pattern of economic benefits from the asset, the useful life can be revised.

Q4: Are there other depreciation methods?
A: Yes, other common methods include declining balance, sum-of-the-years'-digits, and units of production methods.

Q5: How does depreciation affect taxes?
A: Depreciation is a non-cash expense that reduces taxable income, thereby reducing the amount of tax a business must pay.