What is the formula for straight-line depreciation?

What is the formula for straight-line depreciation?

• A. (Cost - Salvage Value) / Useful Life
• B. Cost / Useful Life
• C. (Cost - Salvage Value) / (Useful Life - Salvage Value)
• D. (Cost / Useful Life) - Salvage Value

Answer: (A)

Straight-line depreciation spreads the same depreciation amount each year by using the depreciable base, which is the cost minus the salvage value. The annual depreciation expense is (Cost minus Salvage Value) divided by the Useful Life. This gives a consistent, even drop in the asset’s book value from its initial cost down to its estimated salvage value at the end of its life. For example, if an asset costs 100, has a salvage value of 10, and a useful life of 5 years, the yearly depreciation is (100 - 10) / 5 = 18. This method ensures the asset is written off evenly over its life. The other forms are not correct because they either ignore salvage value, divide by the wrong denominator, or subtract salvage value after dividing, which does not allocate depreciation evenly over each period.

Straight-line depreciation spreads the same depreciation amount each year by using the depreciable base, which is the cost minus the salvage value. The annual depreciation expense is (Cost minus Salvage Value) divided by the Useful Life. This gives a consistent, even drop in the asset’s book value from its initial cost down to its estimated salvage value at the end of its life.

For example, if an asset costs 100, has a salvage value of 10, and a useful life of 5 years, the yearly depreciation is (100 - 10) / 5 = 18. This method ensures the asset is written off evenly over its life.

The other forms are not correct because they either ignore salvage value, divide by the wrong denominator, or subtract salvage value after dividing, which does not allocate depreciation evenly over each period.