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The straight-line method of depreciation charges equal amounts of depreciation to each period over the useful life of the asset. It is determined by subtracting the residual value from the initial cost and dividing it by the number of the years of estimated life. Due to its simplicity, it is the most widely used method.
Example:
Purchased a building for $400,000 with a life of 30 years and residual value of $40,000.
| Cost of equipment – Residual amount/ Life | = $400,000 –$40,000/ 30 years |
| = $ 12,000 depreciation expense per year | |
| Cost of equipment – Residual amount/ Life | = $400,000 –$40,000/ 360 months |
| = $ 1,000 depreciation expense per month |
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