How to Calculate Straight Line Depreciation

When businesses purchase assets like machinery, vehicles, or computers, those assets gradually lose value over time. This reduction in value is called depreciation. One of the simplest and most widely used methods to record this is the straight-line depreciation method.

Straight line depreciation means reducing the value of an asset evenly over its useful life. Each year, the asset’s value decreases by the same amount until it reaches its salvage value (the expected value at the end of its life).

In simple words, the straight line method of depreciation assumes that an asset provides equal benefits every year. Therefore, the expense is spread equally across all years.

For example, if a machine costs ₹1,00,000 and its salvage value after 5 years is ₹10,000, then the total depreciable amount is ₹90,000. Using the straight line method, this ₹90,000 is divided equally over 5 years — ₹18,000 each year.

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Why Use the Straight Line Method?

The straight line method of depreciation is the most popular because it is:

Simple and easy to calculate and understand.
Consistent, as the same expense is charged each year.
Compliant with accounting standards globally.
Suitable for assets that provide uniform benefits over time.

Businesses prefer this method for assets like buildings, furniture, or office equipment that don’t lose efficiency rapidly.

Straight Line Depreciation Formula

The straight line depreciation formula is:

Depreciation Expense per Year = (Cost of Asset – Salvage Value) / Useful Life (in years)

Where:

Cost of Asset: The purchase price, including installation or delivery costs.
Salvage Value: The estimated value at the end of the asset’s useful life.
Useful Life: The number of years the asset is expected to be used.

This formula provides the annual depreciation expense, which remains constant every year.

Straight Line Depreciation Rate

The straight line depreciation rate shows the percentage of the asset’s cost that is depreciated each year.

Depreciation Rate = (1 / Useful Life) × 100

For example, if the useful life of an asset is 5 years, the straight line depreciation rate is 20% per year.

How to Calculate Straight Line Depreciation (Step-by-Step)

Follow these simple steps to calculate straight line depreciation:

Find the total cost of the asset (purchase price + installation or related costs).
Estimate the salvage value, which is the value at the end of its life.
Determine the useful life of the asset (for example, 5 or 10 years).
Apply the straight line depreciation formula:
(Cost – Salvage Value) / Useful Life.
Record the depreciation each year until the asset reaches its salvage value.

Straight Line Method of Depreciation Example

Let’s understand the straight line method of depreciation through examples.

Example 1:
A company buys a delivery van for ₹10,00,000. Its salvage value after 5 years is ₹2,00,000.

Cost = ₹10,00,000
Salvage Value = ₹2,00,000
Useful Life = 5 years

Depreciation per year = (10,00,000 – 2,00,000) / 5 = ₹1,60,000

So, the company records ₹1,60,000 as straight line depreciation expense every year.

Example 2:
A company purchases office furniture for ₹50,000. The salvage value is ₹5,000 and the useful life is 5 years.

Depreciation per year = (50,000 – 5,000) / 5 = ₹9,000

Each year, ₹9,000 is charged as depreciation until the book value becomes ₹5,000.

Example 3:
A computer costs ₹1,20,000, with a salvage value of ₹20,000 and a useful life of 4 years.

Depreciation per year = (1,20,000 – 20,000) / 4 = ₹25,000

The company records ₹25,000 as depreciation each year.

These straight line method of depreciation examples show how consistent and easy this method is.

Straight Line Depreciation Table

A straight line depreciation table helps visualize the reduction in asset value each year.

Year	Depreciation Expense	Accumulated Depreciation	Book Value End of Year
1	₹16,000	₹16,000	₹84,000
2	₹16,000	₹32,000	₹68,000
3	₹16,000	₹48,000	₹52,000
4	₹16,000	₹64,000	₹36,000
5	₹16,000	₹80,000	₹20,000

At the end of year 5, the book value matches the salvage value, confirming accurate depreciation.

Straight Line Depreciation Journal Entry

In accounting, the journal entry for straight line depreciation is passed at the end of each financial year.

Journal Entry:

Depreciation Expense A/c ……Dr
To Accumulated Depreciation A/c

(Being depreciation charged for the year)

Example:
If the depreciation amount is ₹16,000, then ₹16,000 is debited to Depreciation Expense and credited to Accumulated Depreciation.

This entry reduces the company’s profits and lowers the asset’s value on the balance sheet.

Straight Line Depreciation in Accounting

In accounting, the straight line method is the simplest and most consistent approach. It ensures equal expense recognition every year and makes profit and asset valuation predictable.

Common assets using this method include:

Buildings
Furniture
Fixtures
Equipment
Vehicles

The depreciation expense is shown in the income statement, while accumulated depreciation appears under the asset section of the balance sheet.

Straight Line Depreciation in Excel

Using Excel for depreciation makes calculations fast and accurate.

Steps:

Open Excel and create columns: Year, Depreciation, Accumulated Depreciation, and Book Value.
Enter the cost, salvage value, and useful life.
Apply this formula:
=(Cost – Salvage Value) / Useful Life
Drag the formula down to fill for each year.

You can also download a straight line depreciation Excel template to save time.

Straight Line Depreciation Calculator

An online straight line depreciation calculator helps you calculate depreciation instantly.

Simply enter:

Cost of asset
Salvage value
Useful life

It automatically gives you annual depreciation, total depreciation, and the final book value. It’s a handy tool for accountants, students, and small businesses.

Advantages of Straight Line Method

The Straight Line Method of Depreciation offers several advantages that make it a preferred choice for many businesses. Firstly, it is simple to apply and easy to understand, requiring minimal accounting expertise. The method spreads the cost of an asset evenly over its useful life, resulting in a uniform expense every year, which greatly simplifies budgeting and financial planning. It is also widely accepted by accounting standards globally, ensuring compliance and consistency in financial reporting.

This method is particularly ideal for long-term assets that wear evenly over time, such as buildings or furniture, where usage does not fluctuate significantly. Additionally, the calculation process is straightforward and can be easily performed using Excel or basic calculators, making it accessible for businesses of all sizes. Overall, the straight line method combines ease of use, reliability, and compliance, making it a practical and efficient approach for managing depreciation.

Limitations of Straight Line Method

The Straight Line Method of Depreciation, while widely used for its simplicity, does have several notable limitations that businesses should consider. One of the primary drawbacks is that it assumes the asset is used equally every year, which is often not reflective of real-world usage patterns. For many assets, especially machinery or vehicles, usage can vary significantly over their lifespan, making this method less accurate in matching the expense with actual wear and tear. Another limitation is that the straight line method ignores the increasing maintenance costs that typically accompany aging assets.

As an asset gets older, it often requires more frequent repairs or servicing, which is not accounted for in a uniform depreciation schedule, potentially leading to understated costs in later years. Additionally, this method is not suitable for assets that lose value quickly, such as technology, software, or electronic equipment, where the value can decline rapidly due to obsolescence or market changes.

Despite these limitations, the straight line method remains the most popular choice for many businesses and accounting purposes due to its ease of calculation and straightforward application. It provides a predictable and consistent depreciation expense, making financial planning and reporting simpler, even if it may not always reflect the precise economic reality of asset usage and value decline.

Comparison with Other Depreciation Methods

Method	Expense Pattern	Complexity	Suitable For
Straight Line	Equal every year	Simple	Buildings, furniture
Double Declining Balance	Higher in early years	Moderate	Machinery, electronics
Units of Production	Based on usage	Moderate	Vehicles, production tools

The straight line method stands out for its simplicity and consistent expense pattern.

Conclusion

The straight line depreciation method is the easiest and most widely accepted way to spread the cost of an asset over its useful life. By using the straight line depreciation formula, businesses can accurately calculate the annual depreciation, maintain consistent records, and make reliable financial reports.

Whether you use a straight line depreciation calculator, an Excel sheet, or a manual depreciation table, the logic stays simple — the asset loses the same value every year until it reaches its salvage value.

This method helps businesses manage their accounts efficiently and maintain transparency in their financial reporting.

Frequently Asked Questions (FAQs)

1. What is straight line depreciation in accounting?

Straight line depreciation means the asset’s value decreases evenly over its useful life. The same amount is charged every year until it reaches its salvage value. It is simple, predictable, and widely accepted in accounting.

2. How to calculate straight line depreciation?

You can calculate straight line depreciation using this formula:
(Cost of Asset – Salvage Value) / Useful Life.
This gives the annual depreciation expense for the asset.

3. What is the straight line depreciation formula?

The straight line depreciation formula is:
Depreciation Expense = (Cost – Salvage Value) / Useful Life.
It divides the total depreciable cost equally over the asset’s life.

4. What is the straight line depreciation rate?

The straight line depreciation rate is the percentage of the asset depreciated each year. It’s calculated as (1 / Useful Life) × 100.

5. Can I calculate straight line depreciation in Excel?

Yes. Use the formula: =(Cost – Salvage Value) / Useful Life.
This gives you the depreciation per year, which you can extend across all years to create a straight line depreciation table.

6. What is an example of the straight line method of depreciation?

If a car costs ₹5,00,000, has a salvage value of ₹50,000, and a useful life of 5 years:
(5,00,000 – 50,000) / 5 = ₹90,000 per year.
So, ₹90,000 is charged every year as depreciation.

7. What is the journal entry for straight line depreciation?

The journal entry for straight line depreciation is: Depreciation Expense A/c … Dr and To Accumulated Depreciation A/c. This records the depreciation as an expense in the books, reflecting the cost of asset usage while reducing the asset’s book value over its useful life.

8. What is a straight line depreciation calculator used for?

A straight line depreciation calculator is used to quickly determine the annual depreciation, total depreciation, and asset’s final book value. It simplifies the calculation process, saves time, and reduces errors, making it easier for businesses to account for asset depreciation accurately and maintain proper financial records.

9. Is the straight line method suitable for all assets?

No, the straight line method is not suitable for all assets. It works best for assets that depreciate evenly, like buildings or furniture. Assets that lose value faster, such as technology, vehicles, or specialized equipment, may require other methods like declining balance to reflect true value reduction accurately.

10. Why do companies prefer the straight line method?

Companies prefer the straight line method because it is simple, consistent, and widely accepted under accounting standards. It allows predictable annual depreciation, helps in budgeting and financial planning, ensures transparent reporting, and reduces complexity in accounting, making it ideal for long-term and evenly used assets.