Straight line: Difference between revisions
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A basis of allocating total costs or income equally across successive time periods. | A basis of allocating total costs or income equally across successive time periods. | ||
'''Example''' | |||
A fixed asset has a cost of $12m, | |||
an expected disposal value of $2m, | |||
and an expected useful life of 4 years. | |||
Year 3 = 7.0 - 2.5 = | The total expected accounting cost, in $m: | ||
= 12 - 2 | |||
= 10 | |||
Allocated on a straight line basis over 4 years, the depreciation charge in each year, in $m, would be: | |||
= 10 / 4 | |||
= 2.5 | |||
The net book value of the fixed asset in $m would be in each successive year: | |||
Year 1: | |||
= 12.0 - 2.5 | |||
= 9.5 | |||
Year 2: | |||
= 9.5 - 2.5 | |||
= 7.0 | |||
Year 3: | |||
= 7.0 - 2.5 | |||
= 4.5 | |||
Year 4: | |||
= 4.5 - 2.5 | |||
= 2.0 | |||
Using a straight line basis of depreciation, the net book value of a retained asset will often fall to zero. | Using a straight line basis of depreciation, the net book value of a retained asset will often fall to zero. | ||
(But it would never be depreciated to a negative value | |||
(But it would never be depreciated to a negative value.) | |||
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An estimation method which assumes a straight line relationship between the items under review. | An estimation method which assumes a straight line relationship between the items under review. | ||
Sometimes known as Linear interpolation. | Sometimes known as Linear interpolation. | ||
== See also == | == See also == | ||
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* [[Reducing balance]] | * [[Reducing balance]] | ||
* [[Sum of the digits]] | * [[Sum of the digits]] | ||
[[Category:Accounting,_tax_and_regulation]] |
Latest revision as of 19:55, 6 November 2021
1.
A basis of allocating total costs or income equally across successive time periods.
Example
A fixed asset has a cost of $12m,
an expected disposal value of $2m,
and an expected useful life of 4 years.
The total expected accounting cost, in $m:
= 12 - 2
= 10
Allocated on a straight line basis over 4 years, the depreciation charge in each year, in $m, would be:
= 10 / 4
= 2.5
The net book value of the fixed asset in $m would be in each successive year:
Year 1:
= 12.0 - 2.5
= 9.5
Year 2:
= 9.5 - 2.5
= 7.0
Year 3:
= 7.0 - 2.5
= 4.5
Year 4:
= 4.5 - 2.5
= 2.0
Using a straight line basis of depreciation, the net book value of a retained asset will often fall to zero.
(But it would never be depreciated to a negative value.)
2.
An estimation method which assumes a straight line relationship between the items under review.
Sometimes known as Linear interpolation.