Straight-line depreciation in practice
Straight-line depreciation divides an asset's depreciable cost equally across its useful life, producing the same expense each year. This method is popular because it's transparent, easy to track, and acceptable for both financial statements and tax reporting in most jurisdictions.
The formula
Annual Depreciation = (Asset Cost − Salvage Value) ÷ Useful Life (years)
Book value in any year is then calculated as: Book Value = Asset Cost − (Annual Depreciation × Number of Years Elapsed)
Worked example
Imagine you purchase manufacturing equipment for $50,000. You expect it to have a useful life of 10 years and a salvage value of $5,000.
Step 1: Calculate depreciable cost
Depreciable cost = $50,000 − $5,000 = $45,000
Step 2: Calculate annual depreciation
Annual depreciation = $45,000 ÷ 10 = $4,500 per year
Step 3: Build the depreciation schedule
| Year | Annual Depreciation | Accumulated Depreciation | Book Value |
|---|---|---|---|
| 0 | — | $0 | $50,000 |
| 1 | $4,500 | $4,500 | $45,500 |
| 2 | $4,500 | $9,000 | $41,000 |
| 3 | $4,500 | $13,500 | $36,500 |
| 5 | $4,500 | $22,500 | $27,500 |
| 10 | $4,500 | $45,000 | $5,000 |
After 10 years, the equipment's book value reaches the salvage value of $5,000, and depreciation stops. Each year you record the same $4,500 expense on your income statement, and the equipment's value on your balance sheet decreases by that amount.
Common mistakes to avoid
Forgetting salvage value: Always subtract expected salvage value before dividing by useful life. Ignoring it inflates annual depreciation and understates final book value.
Confusing book value with market value: An asset's book value is purely an accounting figure based on cost and depreciation. Its actual resale price may be much higher or lower. Don't use this calculator to estimate what you'll get if you sell the asset.
Miscalculating useful life: Useful life is an estimate based on typical industry standards and your expected usage pattern. A vehicle driven daily for 5 years may depreciate faster than the standard schedule suggests; consult asset-specific guidelines.
Overlooking tax rules: Some jurisdictions allow accelerated depreciation (e.g., bonus depreciation or MACRS in the US) rather than straight-line. This calculator shows the standard method—verify local tax law before filing.
This estimate is for accounting and planning purposes. For tax or financial reporting, consult a qualified accountant or tax professional.