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Straight Line Method

The straight line method calculates depreciation as an equal amount each year over the useful life of an asset. It is calculated by subtracting the salvage value from the original cost and dividing the difference by the number of years of useful life. Some key points: - Depreciation per year is constant and calculated as (Original Cost - Salvage Value) / Useful Life - Book value each year is Original Cost minus accumulated depreciation to date - Examples are provided to demonstrate calculating annual depreciation, book value after a certain number of years, and depreciation for a specific year.

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Khaez Almariego Caindoy
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© Attribution Non-Commercial (BY-NC)
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100 views

Straight Line Method

The straight line method calculates depreciation as an equal amount each year over the useful life of an asset. It is calculated by subtracting the salvage value from the original cost and dividing the difference by the number of years of useful life. Some key points: - Depreciation per year is constant and calculated as (Original Cost - Salvage Value) / Useful Life - Book value each year is Original Cost minus accumulated depreciation to date - Examples are provided to demonstrate calculating annual depreciation, book value after a certain number of years, and depreciation for a specific year.

Uploaded by

Khaez Almariego Caindoy
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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STRAIGHT LINE METHOD

In this method the loss in value is considered to be directly proportional to the age of the
property. No interest is assumed to be paid on the amounts set aside in the depreciation fund.

We shall adopt the following symbols:

n = useful life of the property in years.

m = age of the property at any time less than or equal to n ( m≤ n )

d = annual cost of depreciation.

Dm= total depreciation up to m years.

C o=original or 1st cost of the end of m years.

C m=book value of the end of life, m years.

C n=book value at the end of life, n years

(Salvage or scrap value, as the case maybe)

Then,

C o−C n
d=
n

m
D m =md=( Co −C n )
n

C m=C o−Dm
PROBLEMS

1. An asset has a first cost of 13,000 PESOS, an estimated life of 15 years, and an estimated salvage
value of 1,000 PESOS. Using the straight-line method, find:

a) The annual depreciation charge,


b) The book value at the end of 9 years.

Given:

C o=PHP 13,000.00

n=15 years

C n=PHP 1,000.00

Solution:

C o−C n 13,000−1,000
a) d= = =PHP 800.00
n 15

b) C 9=C o−D 9 =Co −md=13,000−( 9 )( 800 )=PHP 5,800.00

2. A bulldozer has a first cost of 350,000 PESOS with an estimated life of 5 years. The salvage value
at the end of 5 years is estimated to be 50,000 PESOS. Determine the book value of this
bulldozer at the end of the 3rd year.

Given:

C o=PHP 350,000.00

n=5 years

C n=PHP 50,000.00

Solution:

C o−C n 350,000−50,000
d= = =PHP 60,000.00
n 5
C 3=C o−D 3=C o−md=350,000−( 3 ) ( 60,000 )=PHP 170,000.00

3. A firm purchases a computer for 2,000,000 PESOS. It has a life of 9 years and a salvage value of
200,000 PESOS at that time. Determine the following using straight line depreciation:

a. Depreciation charge for year 6


b. The book value at the beginning of year 6

Given:

C o=PHP 2,000,000.00

n=9 years

C n=PHP 200,000.00

Solution:

Co −Cn 2,000,000−200,000
a) d= D 6= = =PHP 200,000.00
n 9

Note: PHP 200,000 is the annual (yearly) depreciation charge; therefore, the
total charge for year 6 is equal to the annual charge.

b) C 5=C o−D 5=C o−md=2,000,000−( 5 ) ( 200,000 )=PHP 1,000,000

Note: Depreciation cost charges every end of the year, thus, at the beginning of
the 6th year has a depreciation charge still equal to the end of the 5 th
year.

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