Straight line: Difference between revisions
imported>Administrator (CSV import) |
imported>Doug Williamson m (Spacing 20/8/13) |
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1. | 1. | ||
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. | ||
For example, a fixed asset has a cost of $12m, an expected disposal value of $2m and an expected useful life of 4 years. | 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. | The total expected accounting cost = $12m - $2m = $10m. | ||
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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): | ||
Year 1 = 12.0 - 2.5 = $9.5m. | Year 1 = 12.0 - 2.5 = $9.5m. | ||
Year 2 = 9.5 - 2.5 = $7.0m. | Year 2 = 9.5 - 2.5 = $7.0m. | ||
Year 3 = 7.0 - 2.5 = $4.5m. | Year 3 = 7.0 - 2.5 = $4.5m. | ||
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. | ||
(But it would never be depreciated to a negative value of course.) | (But it would never be depreciated to a negative value of course.) | ||
2. | 2. | ||
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. | ||
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* [[Reducing balance]] | * [[Reducing balance]] | ||
* [[Sum of the digits]] | * [[Sum of the digits]] | ||
Revision as of 08:34, 20 August 2013
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.
