What is the depreciation formula under the straight-line method?

What is the depreciation formula under the straight-line method?

• A. (Historic cost - residual value) / expected life in years
• B. Historic cost / expected life
• C. (Historic cost - residual value) / expected life in years
• D. (Original cost - accumulated depreciation) / years

Answer: (C)

Straight-line depreciation spreads the asset’s cost evenly over its useful life. You first determine the depreciable base, which is historical (purchase) cost minus residual (salvage) value. Then you divide that base by the asset’s useful life in years to find the annual depreciation expense. So the yearly expense is (Historic cost − Residual value) / Useful life in years. For example, if an asset costs 100,000, has a 10,000 salvage value, and a 10-year life, annual depreciation is (100,000 − 10,000) / 10 = 9,000 per year. If salvage value were zero, it would simply be cost divided by life. The formula focuses on the depreciable base and the time over which it’s expensed; using accumulated depreciation in the numerator would not produce the annual charge.

Straight-line depreciation spreads the asset’s cost evenly over its useful life. You first determine the depreciable base, which is historical (purchase) cost minus residual (salvage) value. Then you divide that base by the asset’s useful life in years to find the annual depreciation expense. So the yearly expense is (Historic cost − Residual value) / Useful life in years. For example, if an asset costs 100,000, has a 10,000 salvage value, and a 10-year life, annual depreciation is (100,000 − 10,000) / 10 = 9,000 per year. If salvage value were zero, it would simply be cost divided by life. The formula focuses on the depreciable base and the time over which it’s expensed; using accumulated depreciation in the numerator would not produce the annual charge.