Straight Line Basis

The straight-line method is a method of depreciation that allocates an equal amount of the cost of an asset to each accounting period over its useful life. This method is often used for assets that have a relatively long useful life, such as buildings and equipment.

To calculate depreciation using the straight-line method, you first need to determine the asset's cost, its useful life, and its salvage value. The cost of the asset is the amount you paid for it, plus any costs incurred to get it ready for use. The useful life of the asset is the number of years you expect it to be useful to your business. The salvage value is the amount you expect to be able to sell the asset for at the end of its useful life.

Once you have these figures, you can calculate the depreciation expense for each year by dividing the cost of the asset by its useful life. For example, if you purchase an asset for $10,000 and you expect it to have a useful life of 10 years, the depreciation expense for each year will be $1,000.

The straight-line method is a simple and straightforward method of depreciation. However, it does not take into account the fact that an asset's value may decline more rapidly in the early years of its useful life. As a result, the straight-line method may result in lower depreciation expenses in the early years and higher depreciation expenses in the later years.

There are other methods of depreciation that may be more appropriate for assets that have a shorter useful life or that decline in value more rapidly. These methods include the declining-balance method and the sum-of-the-years'-digits method.

The straight-line method is the most common method of depreciation used for financial reporting purposes. However, it is important to note that the Internal Revenue Service (IRS) allows businesses to use different methods of depreciation for tax purposes. Businesses should consult with their tax advisor to determine which method of depreciation is most appropriate for their situation.