Under the straight-line depreciation method, the depreciable cost of an asset is spread evenly over the asset’s estimated useful life.
Accordingly, depreciation expense for each period (quarter or year) is the same, and can be calculated as follows:
Annual Depreciation Expense | = | Original Cost less Salvage Value Useful Life |
Where:
Original Cost is the original cost of the asset.
Salvage (Residual) Value is the physical asset’s estimated salvage/disposal/residual/trade-in value at the time of disposal. Original cost minus salvage value is often referred to as the depreciable cost.
Useful Life is the total amount of time (usually in years) the asset is expected to remain in service. Useful life varies by asset types (asset classes).
Exercise
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Solution
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