Here Are The Straight-Line Depreciation Method: Definition, Formula, and Example

kelolalaut.com The straight-line depreciation method is a fixed asset depreciation method that allocates the same depreciation expense every year over the asset’s useful life. This method is the simplest and most commonly used because it is easy to calculate and provides a consistent depreciation expense.

Formula for the Straight-Line Depreciation Method

Asset depreciation is calculated using the following formula:

Annual Depreciation = 

Explanation:

• Acquisition Cost    : The initial cost to acquire the fixed asset.
• Residual Value       : The remaining value or resale value of the asset after its useful life ends.
• Useful Life               : The estimated duration of asset usage in years.

Advantages and Disadvantages of the Straight-Line Method

Advantages:

1. Easy to apply

The calculation is simple and does not require complex data

1. 2. Constant depreciation expense

The depreciation expense remains the same every year, making financial planning easier.

3. Financial report consistency 

    Suitable for assets that are used evenly throughout their useful life.

Disadvantages:

1. 1. Does not reflect actual asset usage

Some assets may experience a decline in productivity over time, but this method depreciates them at a constant rate.

1. 2. Does not consider repairs or value enhancements

Additional costs, such as maintenance, are not included in the calculation.

Example Calculation

Suppose a company purchases a machine for Rp 100,000,000 with a useful life of 5 years and a residual value of Rp 10,000,000. The annual depreciation is calculated as follows:

Annual Depreciation=    =   = 18.000.000

Thus, the company will record a depreciation expense of Rp 18,000,000 per year for 5 years.

Conclusion

The straight-line depreciation method is an efficient and easy way to allocate fixed asset costs over their useful life. Despite some limitations, this method remains a top choice in accounting practices due to its simplicity and stability in expense allocation.

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