The straight line depreciation method calculator determines the constant rate at which an asset loses its value. It is a simple to use calculator. The user is not required to subscribe or register to the website.
As it may be evident from the name as well, the simplest depreciation model is none other than the straight-line depreciation.
To determine the straight line deprecation, companies take buying price of the given asset/resource and then deduct salvaging value, its approximate sell on worth when it is not needed any longer.
The ensuing value is then divided by the whole number of years during which, the resource/asset is thought to be useful, known as the useful life in the world of accounting.
Straight Line = (Buying cost of Asset - Salvaging Value) / Expected Useful Life of Asset
The straight line depreciation formula that you apply in this model is given below:
annual expense = (OV - RV) / n
In this particular depreciation, an asset reduces in value at a uniform rate. Each year, the depreciation expense for the given asset, is precisely the same. Even though straightforwardness isn’t the strongest suit of a depreciation model, the straight-line model it is often used due to its uniformity.
If you wish to determine the end book worth of your asset/resource after a particular number of years have passed, you need to use this straight line method formula given below:
end book value = OV - m * [(OV - RV) / n]
Bear in mind that you don't necessarily have to find out this value manually - you can input the required values into straight line depreciation calculator and allow it to do the math on your behalf!
Consider this, a company A purchases a piece of equipment for $13,000. Suppose this particular piece of equipment has an estimated life of 12 years and a salvaging value of $700.
To find out the straight line depreciation, the accountants have to divide the variance between the salvaging value and the price of the asset/item, also known as the base of depreciation, or asset price, with the estimated life of the given equipment. In simple words, straight line depreciation equation is required to solve the problem.
The straight line basis for the given equipment is ($13,000 - $700) / 12 = $1,025. What this basically implies is that rather than writing off the total price of the equipment in the present time period, the company has to account for only the expense $1,025.
The company would carry on accounting for the expense $1,025 to what can be referred to as the contra-account, called the accumulated depreciation, until the point that only $700 remains on the books as the value of the given equipment.
Accountants commonly prefer the straight line model because it is spectacularly easy to use, gives lesser errors over the useful life of the asset/resource, and expenses the same quantity in each accounting epoch.
Unlike more complex models out there, like the double declining balance, straight line is relatively simple and only employs 3 variables to figure out the depreciation amount in each individual accounting epoch.
However, the straight line model’s elegance is also one of its greatest downsides. One of the most blatant drawbacks of employing this methodology is that the computation of useful life is really just based on guess work.
For instance, there is always a hazard that tech advancements could in fact, potentially cause the asset/resource to become outdated earlier than the expected time.
Further, the straight line model does not factorize the speeded loss of a resource’s value in the immediate run, nor the probability that it would cost more to maintain as the time passes and it gets obsolete.
Speaking of depreciations, you can also check out our percentage depreciation calculator, car depreciation calculator and MACRS depreciation calculator.