Straight Line Method

1. QUS 3205 Estimating 1
Straight Line Depreciation Method
1. GOH YEN TING I16011286
2. LIAW ZHI YING I16010863
3. GAN WEN YAN I15008119
4. SA LI ROU I16011206

2.  Depreciates the cost evenly throughout
the effective working life of a fixed
asset.
 The simplest and easiest method.
 Assumes the asset produces same
amount of revenue and provides same
rate of services each year.
Straight Line Depreciation

4. Method of Calculation
1. Determine the initial cost of the asset
that has been recognized as a fixed
asset.
2. Subtract the estimated salvage value
of the asset from the amount at
which it is recorded.

5. 3. Determine the estimated useful life of the
asset. It is easiest to use a standard useful
life for each class of assets.
4. Divide the estimated useful life (in years)
into 1 to arrive at the straight-line
depreciation rate.
Straight Line Depreciation
= (Initial cost of Asset - Estimated Salvage
Value) ÷ Estimated Useful Life of Asset

6.  The Eastern company provides the
following information regarding one of
its fixed assets that has been purchased
on January 1, 2015.
- Cost of the asset: $ 60 000
- Salvage value: $ 10 000
- Useful life: 5 years
- Depreciation rate per year: 20%
Example of Calculation

7. Calculate annual depreciation expense of
this asset using straight line method.
Method 1:
Annual depreciation =
$60 000 − $10 000
5
= $ 10 000/year
Method 2:
Annual depreciation = ( $ 60 000 - $ 10 000)
× 20 %
= $ 10 000/year

8. Straight-Line
Depreciation
Declining-Balance
Depreciation
Sum-of-the-Years’
Digits
Definition Same equal amount
of depreciation
expense for each full
year over the life of
the asset.
Charges
depreciation at
higher rate in earlier
years of an asset.
Amount of
depreciation reduces
as the life of asset
progresses.
Involves calculating
depreciation based
on the sum of the
number of years in
an asset's useful life.
Formula Depreciable Amount
Useful Life
Depreciation Rate
x
Book Value of Asset
Depreciable Base
x
Remaining Useful Life
Sum of the Years′Digits
Comparison of Depreciation
Methods

9. Advantages • Simplest & widely
acceptable method.
• Applied to all long-
term assets
• The same for each
period of assets’
service life.
• Reflect better the
difference in
usage of an asset
from time to time
compared to the
straight line
depreciation.
• More accurate
the difference in
usage of
different assets
from one period
to the other.
Disadvantages • Might not be
appropriate for
some depreciable
assets (due to
rapidly developing
technology, such as
computers)
• They have
declining amounts
of depreciation
expense which
creates a large
difference
between the costs.
• Harder to
compute.
• Declining
depreciation
expense amounts
usually offsets
by increasing the
maintenance
expense.

10. When to use Suitable for assets
which have low
repairs and
maintenance costs
eg. leases,
copyrights.
Suitable for plant
and machinery
which have high
repairs and
maintenance costs
as the machine gets
older.
Office equipment.

11. THE END
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