A basis of allocating total costs or income equally across successive time periods.
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
Allocated on a straight line basis over 4 years, the depreciation charge in each year, in $m, would be:
= 10 / 4
The net book value of the fixed asset in $m would be in each successive year:
= 12.0 - 2.5
= 9.5 - 2.5
= 7.0 - 2.5
= 4.5 - 2.5
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.)
An estimation method which assumes a straight line relationship between the items under review.
Sometimes known as Linear interpolation.