How is the annual depreciation rate determined in the straight-line method?

How is the annual depreciation rate determined in the straight-line method?

• A. By using an estimated life divided into the depreciable base
• B. By dividing residual value by original cost
• C. By multiplying the number of years by the depreciable base
• D. By dividing total depreciation by asset usage

Answer: (A)

In the straight-line method of depreciation, the annual depreciation rate is calculated by taking the depreciable base—the difference between the asset's cost and its estimated residual value—and dividing it by the estimated useful life of the asset. This approach allows for an even distribution of the asset's cost over its useful life, ensuring that each year reflects an equal expense related to the asset's usage. By focusing on both the total cost of the asset and the period over which it will provide benefit, this method results in a consistent and straightforward expense recognition each accounting period. The other options do not accurately represent how the annual depreciation rate is determined under this method or involve concepts that are not applicable to the straight-line calculation process.

In the straight-line method of depreciation, the annual depreciation rate is calculated by taking the depreciable base—the difference between the asset's cost and its estimated residual value—and dividing it by the estimated useful life of the asset. This approach allows for an even distribution of the asset's cost over its useful life, ensuring that each year reflects an equal expense related to the asset's usage. By focusing on both the total cost of the asset and the period over which it will provide benefit, this method results in a consistent and straightforward expense recognition each accounting period.

The other options do not accurately represent how the annual depreciation rate is determined under this method or involve concepts that are not applicable to the straight-line calculation process.