VCE Accounting Unit 4

1. 16.2
REVIEW OF STRAIGHT-
LINE DEPRECIATION

2. © Michael Allison, Trinity Grammar School.
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$1,000
$2,000
$3,000
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Year 1 Year 2 Year 3
16.2 REVIEW OF STRAIGHT-LINE
DEPRECIATION
Depreciation expense =
ResidualCost -
Useful Life
Straight-Line Depreciation Method
A method of depreciation which allocates the same amount of
depreciation each reporting period.

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Straight-line depreciation is effective when an asset earns a constant
amount of revenue throughout its life and is used (consumed) the
same amount each period. Examples…
 These assets are just as efficient at earning revenue in their first year
as they are in their last year
 These assets are used (consumed) the same amount in their first year
as they are in their last year
Shop fittings Display equipment Office furniture
16.2 REVIEW OF STRAIGHT-LINE
DEPRECIATION

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 In this case, it is appropriate to use straight-line
depreciation because a constant rate of depreciation
will be charged
 This fulfils:
Reporting Period Principle:
• The actual (constant) amount of the chair used can be
matched against revenue generated each period
• This amount is the same each period
Relevance:
• This enables an accurate profit to be determined under
accrual accounting
• The constant rate of depreciation actually represents the
way the asset is used (consumed) during its life as it
generates the same revenue each period
16.2 REVIEW OF STRAIGHT-LINE
DEPRECIATION

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
SQ1 X