Straight line depreciation is where an asset loses value equally over a period of time. For example if an asset is worth 10,000 and it depreciates to 1,000 over 5 years, the yearly depreciation is 1,800. (10,000 less 1000 = 9000 divided by 5 years = 1800).
The calculator below shows the depreciation values if either the depreciation period or value is entered. There is an option to add the results to a table for comparision.(the table appears the first time you click the button).
Did you know that the assets you own, lose their value while they are being used? They do, and you can use the straight-line depreciation method to measure this indirect expense. This method is considered the simplest method and is most commonly used throughout the accounting world.
In this method the production or initial costs of an asset are evenly spread during the course of its useful life span. This value is then divided by the number of years it is expected to be used and the value obtained is further subtracted from the second year on. First useful year begins from the month the asset was purchased.
Though depreciation is widely used for accounting purposes, in the UK it is worth noting that during tax filing it is ignored by HMRC. Using depreciation is not permitted by HMRC.
The straight-line depreciation calculator is the simplest way made even simpler for its users. Depreciation calculations done by this method is done using two different ways on the calculator:
Formula for straight line depreciation expense is stated below:
Additionally, the straight line depreciation rate (or period) can also be calculated using the following formula:
Let's assume, a company purchases a machine for £4500 and it has been used for the entire first year of its useful life. The estimated salvage value of the machine is £1000 with useful life of 5 years. Annual straight line depreciation of the asset will be calculated as follows:
Here, £700 is an annual depreciation expense.
Let's learn how the straight-line depreciation method calculator can benefit you.
Let's take a look at the factors that can have a huge impact on the depreciation of any asset.
There are many benefits of using straight line calculation method, but at the same time there are some drawbacks of using this method.
This method is useful because it is simple and can be applied on many kinds of long-term assets. However, this method does not show accurate difference in the usage of an asset and could be inappropriate for some depreciable assets. We can take some hi-tech appliances like computers/ laptops as an example. The depreciation expense in this kind of asset is not likely to be similar throughout its useful life as new technologies keep on changing.
Straight line depreciation is simple hence there is a low probability of error. However, this method uses assumed (guesswork) factors which is a major drawback in any calculation. Also, this method does not factor the accelerated loss of an asset's value. So, it is not useful in the short term.
Depreciation calculation methods like Percentage (Declining balance) are more useful as accelerated measures of depreciation, learn more about it here.
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