How is the Straight-Line Method computed?

How is the Straight-Line Method computed?

• A. By multiplying the residual value by the asset's age
• B. By dividing the depreciable base by the estimated life
• C. By taking the total depreciation over the asset's life
• D. By adding acquisition cost and depreciation expense

Answer: (B)

The Straight-Line Method of depreciation is computed by dividing the depreciable base by the estimated life of the asset. The depreciable base is calculated by subtracting the residual (or salvage) value of the asset from its acquisition cost. This method allows for an equal amount of depreciation expense to be recorded each year over the asset's useful life, making it one of the simplest and most commonly used methods of depreciation. For example, if an asset costs $10,000 and has a residual value of $1,000 with an estimated useful life of 5 years, the depreciable base would be $9,000 ($10,000 - $1,000). Dividing this amount by the estimated life of 5 years gives an annual depreciation expense of $1,800. This consistency and ease of calculation make the Straight-Line Method a preferred choice for many businesses when accounting for depreciation.

The Straight-Line Method of depreciation is computed by dividing the depreciable base by the estimated life of the asset. The depreciable base is calculated by subtracting the residual (or salvage) value of the asset from its acquisition cost. This method allows for an equal amount of depreciation expense to be recorded each year over the asset's useful life, making it one of the simplest and most commonly used methods of depreciation.

For example, if an asset costs $10,000 and has a residual value of $1,000 with an estimated useful life of 5 years, the depreciable base would be $9,000 ($10,000 - $1,000). Dividing this amount by the estimated life of 5 years gives an annual depreciation expense of $1,800. This consistency and ease of calculation make the Straight-Line Method a preferred choice for many businesses when accounting for depreciation.