What Is Straight-Line Depreciation?
Formula, a year-by-year table, and a worked example.
Home › Accounting Glossary › Straight-Line Depreciation
| Compare with | Reducing balance |
|---|---|
| Charge each year | Equal |
| Topic | Financial accounting · Non-current assets |
Straight-line depreciation in plain English
It is the simplest method. If an asset will be used up evenly over its life, charge an equal share of its cost each year. The residual value is not depreciated, because the business expects to recover it at the end.
Worked example
A machine costs 12,000, has a residual value of 2,000 and a useful life of 5 years.
Annual depreciation = (12,000 − 2,000) ÷ 5 = 2,000.
| Year | Depreciation | Accumulated depreciation | Book value |
|---|---|---|---|
| 1 | 2,000 | 2,000 | 10,000 |
| 2 | 2,000 | 4,000 | 8,000 |
| 3 | 2,000 | 6,000 | 6,000 |
| 4 | 2,000 | 8,000 | 4,000 |
| 5 | 2,000 | 10,000 | 2,000 |
The book value ends at the 2,000 residual value. Build your own on the free depreciation schedule template.
- Forgetting to subtract the residual value before dividing.
- Depreciating for a full year when the asset was bought part-way through the year, if your syllabus requires time apportionment.
Frequently asked questions
When is straight-line depreciation used?
When an asset gives roughly equal benefit each year, such as buildings or office furniture.
Does the book value ever go below the residual value?
No. Depreciation stops when the book value reaches the residual value.
What is the depreciation rate?
The yearly charge as a percentage of the depreciable amount. For a 5-year life, it is 1 ÷ 5 = 20%.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.