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. | ||
The total expected accounting cost = $12m - $2m = $10m. | For 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 | |||
= $12m - $2m | |||
= $10m. | |||
Allocated on a straight line basis over 4 years, the depreciation charge in each year would be | |||
$10m/4 = $2.5m. | |||
The net book value of the fixed asset would be (at the end of each year): | The net book value of the fixed asset would be (at the end of each year): | ||
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Year 4 = 4.5 - 2.5 = $2.0m. | Year 4 = 4.5 - 2.5 = $2.0m. | ||
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. | ||
Revision as of 15:30, 26 November 2014
1.
A basis of allocating total costs or income equally across successive time periods.
For 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
= $12m - $2m = $10m.
Allocated on a straight line basis over 4 years, the depreciation charge in each year would be
$10m/4 = $2.5m.
The net book value of the fixed asset would be (at the end of each year):
Year 1 = 12.0 - 2.5 = $9.5m.
Year 2 = 9.5 - 2.5 = $7.0m.
Year 3 = 7.0 - 2.5 = $4.5m.
Year 4 = 4.5 - 2.5 = $2.0m.
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 of course.)
2.
An estimation method which assumes a straight line relationship between the items under review.
Sometimes known as Linear interpolation.
