STRAIGHT LINE Method of Depreciation in 3 Steps!
Accounting Stuff・5 minutes read
Depreciation reduces tangible fixed assets due to wear and tear, with straight-line depreciation evenly spreading expenses over an asset's useful life by calculating the depreciation rate and costs annually until the book value matches the residual value.
Insights
- Straight-line depreciation evenly spreads the cost of an asset over its useful life, simplifying the calculation of depreciation expenses annually.
- The process of calculating straight-line depreciation involves creating a detailed schedule with specific columns for tracking depreciation expense, accumulated depreciation, and book values, ensuring accurate accounting for the asset's value over time.
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Recent questions
What is depreciation?
Reduction in asset value due to wear and tear.
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Summary
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"Understanding Straight-Line Depreciation for Fixed Assets"
- Depreciation is the process of reducing the book value of tangible fixed assets due to wear and tear, time, or obsolescence.
- Straight-line depreciation is a fixed cost method where the expense is evenly spread over an asset's useful life.
- To calculate straight-line depreciation, first write down the asset details, then build a depreciation schedule with five columns, and finally calculate the depreciation expense, accumulated depreciation, and book values for each period.
- The depreciation expense is calculated by multiplying the straight-line depreciation rate (1/12 years) by the depreciable cost ($360,000), resulting in $30,000 for year 1. This process is repeated annually until the closing book value matches the residual value of $90,000 after twelve years.
