1. What is Straight-Line Depreciation?

Straight-line depreciation is the simplest and most commonly used method of allocating the cost of a capital asset over its useful life. It results in equal depreciation expenses each accounting period.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( \text{Cost} \) — Original purchase price of the asset
• \( \text{Salvage Value} \) — Estimated residual value at end of useful life
• \( \text{Useful Life} \) — Expected service life in years

Explanation: The formula evenly spreads the depreciable amount (cost minus salvage value) over the asset's useful life.

3. Importance of Depreciation Calculation

Details: Proper depreciation calculation is essential for accurate financial reporting, tax compliance, and business decision-making. It helps match expenses with revenues and provides a more accurate picture of asset values.

4. Using the Calculator

Tips: Enter the original cost of the asset, its estimated salvage value at end of life, and the expected useful life in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use straight-line depreciation?
A: It's simple to calculate and applies well to assets that provide consistent benefits over their useful lives.

Q2: What are alternative depreciation methods?
A: Other methods include declining balance, sum-of-the-years' digits, and units of production, which may better match some assets' usage patterns.

Q3: How do you determine useful life?
A: Useful life is based on IRS guidelines, manufacturer specifications, or company experience with similar assets.

Q4: Can salvage value be zero?
A: Yes, if the asset is expected to have no residual value at the end of its useful life.

Q5: How does this affect taxes?
A: Depreciation reduces taxable income by spreading the asset's cost over multiple years rather than deducting it all at once.