Straight Line Depreciation Formula
The calculation (Cost - Salvage Value) ÷ Useful Life that determines equal annual depreciation expense amounts for tangible assets over their service periods.
Straight Line Depreciation Formula
The mathematical calculation used to determine equal annual depreciation expense amounts for tangible assets over their useful lives, expressed as:
Annual Depreciation Expense = (Cost - Salvage Value) ÷ Useful Life
For example, for machinery costing $100,000 with an expected salvage value of $10,000 and a useful life of 6 years, the annual depreciation expense would be ($100,000 - $10,000) ÷ 6 = $15,000 per year.
This formula requires three key inputs: the asset’s original cost (including acquisition and preparation expenses), its estimated salvage value (expected disposal value at the end of its useful life), and its estimated useful life in years or production units. When applied monthly, the annual amount is divided by 12. The formula’s simplicity makes it easy to apply and understand, though it doesn’t reflect usage patterns that might cause accelerated deterioration early or late in an asset’s life.