Straight line

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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 of course.)


2.

An estimation method which assumes a straight line relationship between the items under review.

Sometimes known as Linear interpolation.


See also