1. What is Straight-Line Depreciation?

Straight-line depreciation is the simplest and most commonly used method for allocating the cost of a capital asset over its useful life. It assumes the asset will lose the same amount of value each year.

2. How Does the Calculator Work?

The calculator uses the straight-line depreciation formula:

Where:

• \( \text{Cost} \) — Original purchase price of the asset ($)
• \( \text{Salvage Value} \) — Estimated resale value at end of useful life ($)
• \( \text{Useful Life} \) — Expected number of years the asset will be productive (years)

Explanation: This method spreads the depreciable cost (cost minus salvage value) evenly over the asset's useful life.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is essential for proper financial reporting, tax calculations, and business planning. It helps businesses allocate asset costs appropriately and track the decreasing value of assets over time.

4. Using the Calculator

Tips: Enter the original cost in dollars, estimated salvage value in dollars, and useful life in years. All values must be valid (cost ≥ 0, salvage ≥ 0, life ≥ 1, and cost ≥ salvage).

5. Frequently Asked Questions (FAQ)

Q1: What types of assets use straight-line depreciation?
A: This method is commonly used for buildings, office equipment, furniture, and other assets that provide consistent benefits over their useful life.

Q2: How does salvage value affect depreciation?
A: Higher salvage value reduces the annual depreciation expense since only the difference between cost and salvage value is depreciated.

Q3: Can the useful life be changed after purchase?
A: Yes, if there's a significant change in the expected pattern of economic benefits from the asset, the useful life should be reassessed.

Q4: Are there other depreciation methods available?
A: Yes, other methods include declining balance, sum-of-years'-digits, and units of production methods, each with different expense patterns.

Q5: How does depreciation affect taxes?
A: Depreciation is a non-cash expense that reduces taxable income, thereby reducing the amount of tax a business needs to pay.