Straight Line Depreciation Method

The straight-line method is also called the fixed percentage method of the purchase price of the asset. Based on the straight-line method the amount of depreciation expense annually is fixed which is defined by the following formula:

Formula of Straight Line Depreciation Method

The amount of depreciation r is defined by the formula:

Information :
A = Cost of assets is the amount of costs incurred by the company to acquire an activation until the asset is ready to be operated.
S = Estimated residual value of the asset is the value of the appraisal that may be obtained through the assets that have passed its life.
r = Depreciation rate or percentage depreciation
n = Age of benefit / Age of economic assets in the year.
D = Depreciation expense for each period

Example Question of Straight Line Depreciation Method

An asset at a cost of $5,000,000. It is estimated that the asset can be utilized for 6 years with an estimated residual value of $2,000,000. Using the straight-line method, please determine the amount of depreciation expense annually!

Answer:
A = $5,000,000
S = $2,000,000
n = 6 years

So the amount of depreciation each year is $600,000 .

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