1. What is Straight Line Depreciation?

The straight-line method is the simplest way to calculate depreciation, allocating the cost of an asset evenly over its useful life. It's commonly used for accounting and tax purposes to determine the annual reduction in value of a capital asset.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( \text{Cost} \) — Original purchase price of the asset
• \( \text{Salvage Value} \) — Estimated residual value at end of useful life
• \( \text{Useful Life} \) — Expected service life in years

Explanation: The formula evenly spreads the depreciable amount (cost minus salvage value) over the asset's useful life.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax deductions, and business planning. It helps match expenses with revenues and provides a realistic view of asset values.

4. Using the Calculator

Tips: Enter the original cost in dollars, estimated salvage value in dollars, and useful life in years. All values must be valid (cost > 0, life ≥ 1 year).

5. Frequently Asked Questions (FAQ)

Q1: When should I use straight-line depreciation?
A: It's best for assets that lose value evenly over time, like office furniture or buildings. Not ideal for assets with rapid early depreciation like vehicles.

Q2: What's the difference between salvage value and scrap value?
A: Salvage value is the estimated resale value, while scrap value is what you'd get if dismantled for parts. Often used interchangeably.

Q3: Can salvage value be zero?
A: Yes, if the asset will have no value at the end of its useful life (e.g., certain computer equipment).

Q4: How do I determine useful life?
A: Check IRS guidelines (Publication 946) or industry standards. It varies by asset type (e.g., computers 5 years, office furniture 7 years).

Q5: Are there other depreciation methods?
A: Yes, including declining balance, sum-of-years-digits, and units of production methods, each with different calculation approaches.