What is the straight-line depreciation formula?

What is the straight-line depreciation formula?

• A. (cost - salvage value) / useful life
• B. Cost / Useful Life
• C. (cost - accumulated depreciation) / Useful Life
• D. Salvage Value / Useful Life

Answer: (A)

Straight-line depreciation allocates an asset’s cost evenly over its useful life. The amount that can be depreciated is the cost minus any salvage value, and you divide that depreciable amount by the asset’s useful life to get the annual depreciation expense. So the correct formula is (cost minus salvage value) divided by useful life. Using cost divided by useful life ignores salvage value, which would overstate depreciation if a nonzero salvage value exists. Using (cost minus accumulated depreciation) would mix in amounts that have already been expensed, which isn’t how the current period’s depreciation is calculated. Dividing salvage value by useful life would allocate the salvage value itself rather than the portion of cost that’s being depreciated.

Straight-line depreciation allocates an asset’s cost evenly over its useful life. The amount that can be depreciated is the cost minus any salvage value, and you divide that depreciable amount by the asset’s useful life to get the annual depreciation expense. So the correct formula is (cost minus salvage value) divided by useful life.

Using cost divided by useful life ignores salvage value, which would overstate depreciation if a nonzero salvage value exists. Using (cost minus accumulated depreciation) would mix in amounts that have already been expensed, which isn’t how the current period’s depreciation is calculated. Dividing salvage value by useful life would allocate the salvage value itself rather than the portion of cost that’s being depreciated.