What is the formula for straight-line depreciation?

The formula for straight-line depreciation is designed to allocate the cost of an asset evenly over its useful life. In this approach, the total cost of the asset is reduced by the estimated salvage value, which is the expected residual value at the end of its useful life. By subtracting the salvage value from the total cost, you determine the amount that will be depreciated over the years.

The resulting figure is then divided by the number of years the asset is expected to be used. This results in a consistent annual depreciation expense, making it straightforward for accounting and budgeting purposes. The simplicity of this method is one of the reasons it is widely used in various industries.

This calculation helps businesses accurately reflect the diminishing value of their assets over time, ensuring financial statements provide a true picture of financial health and resource allocation.