VCE Accounting

1. 13.3
STRAIGHT-LINE
DEPRECIATION

2. © Michael Allison. Author’s permission required for external use.
 There are two methods of depreciation…
13.3 STRAIGHT-LINE DEPRECIATION
Reducing Balance
Depreciation
Straight-Line
Depreciation or
Covered in Unit 4

3. © Michael Allison. Author’s permission required for external use.
 Straight-line depreciation method
 Allocates the same amount of depreciation each reporting period
 Requires the following details to be ascertained:
Cost
The original cost of purchasing the asset plus all other costs incurred in
order to get the asset into a capacity and location to earn revenue
which will provide an economic benefit for the life of the asset
Residual
Value
The estimated amount the asset will be sold or traded-in for at the end
of its useful life (when it is “scrapped”)
Useful
Life
The estimated period of time the asset will be used for (in years)
13.3 STRAIGHT-LINE DEPRECIATION

4. © Michael Allison. Author’s permission required for external use.
 Straight-line depreciation method formula…
Depreciation
Expense =
Cost - Residual Value
Useful Life
Depreciable amount – the amount of the Non-
Current Asset’s total cost that will be depreciated…
13.3 STRAIGHT-LINE DEPRECIATION

5. © Michael Allison. Author’s permission required for external use.
 Example: a business purchased a van with the following details:
 Purchase price: $14,000
 Delivery fee: $2,000
 Estimated useful life: 4 years
 Estimated residual (scrap) value: $6,400
Depreciation
Expense =
Cost - Residual Value
Useful Life
$16,000 $6,400
4
$9,600
$2,400 per year
13.3 STRAIGHT-LINE DEPRECIATION

6. © Michael Allison. Author’s permission required for external use.
 Straight-line depreciation method formula… can also be expressed as a
percentage
13.3 STRAIGHT-LINE DEPRECIATION
Depreciation %
Per Annum =
Depreciation
Expense
Cost
$2,400
$16,000
15%

7. © Michael Allison. Author’s permission required for external use.
 For example, a delivery van
generating $25,000 of revenue each
period has the following details:
 Cost = $35,000
 Estimated useful life = 3 years
 Estimated residual value =
$5,000
Depreciation expense =
ResidualCost -
Useful Life
= $10,000
2015 2016 2017
Revenue = $25,000 Revenue = $25,000 Revenue = $25,000
Depreciation = $10,000-
Net Profit = $15,000=
Depreciation = $10,000-
Net Profit = $15,000=
Depreciation = $10,000-
Net Profit = $15,000=
$35,000 $5,000
3
13.3 STRAIGHT-LINE DEPRECIATION

8. © Michael Allison. Author’s permission required for external use.
13.3 STRAIGHT-LINE DEPRECIATION
$-
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
Year 1 Year 2 Year 3
Depreciation expense =
ResidualCost -
Useful Life
Straight-Line Depreciation Method
A method of depreciation which allocates the same amount of
depreciation each reporting period.

9. © Michael Allison. Author’s permission required for external use.
 Depreciation applied in the real world…
13.3 STRAIGHT-LINE DEPRECIATION

10. © Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
SQ5 X