\[D=\frac{C-S}{L}\]
Variables
Dannual depreciation expense (currency/year)
Casset acquisition cost (currency)
Ssalvage value at end of useful life (currency)
Luseful life (years)
Description
What is this formula?
The Straight-Line Depreciation formula calculates the annual depreciation expense of an asset by distributing its depreciable value evenly over its useful life.
When to use it
Use this method when an asset is expected to provide economic benefits at a relatively constant rate throughout its useful life. It is the most widely used depreciation method in financial accounting.
Example
A company purchases equipment for $50,000.
Data:
Cost = $50,000
Salvage Value = $5,000
Useful Life = 10 years
Formula:
D=(C-S)/L
Substitution:
D=(50,000-5,000)/10
D=4,500
Result:
Annual depreciation expense = $4,500 per year
Applications
Financial accounting
Fixed asset management
Corporate financial statements
Tax planning (where permitted)
Business valuation
Investment analysis