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Straight Line Depreciation Formula:
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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.
The calculator uses the straight line depreciation formula:
Where:
Explanation: This method spreads the depreciable amount (cost minus salvage value) evenly over the asset's useful life.
Details: Accurate depreciation calculation is essential for proper financial reporting, tax calculations, and business planning. It helps allocate the cost of assets to the periods that benefit from their use.
Tips: Enter the original cost of the asset, estimated salvage value, and useful life in years. All values must be valid (cost > 0, salvage ≥ 0, life ≥ 1).
Q1: When should I use straight line depreciation?
A: Straight line is best for assets that provide consistent benefits over their useful life, such as buildings, furniture, and office equipment.
Q2: What's the difference between cost and salvage value?
A: Cost is what you paid for the asset. Salvage value is what you expect to receive when you dispose of the asset at the end of its useful life.
Q3: How do I determine an asset's useful life?
A: Useful life depends on the asset type, usage patterns, and industry standards. Tax authorities often provide guidelines for different asset classes.
Q4: Can salvage value be zero?
A: Yes, if you expect the asset to have no residual value at the end of its useful life, you can set salvage value to zero.
Q5: Are there other depreciation methods available?
A: Yes, other common methods include declining balance, sum-of-years'-digits, and units of production methods, each with different applications.