# Straight line method and dismissing balance method of depreciation

1
by abs1

2016-03-11T17:03:39+05:30

Straight line depreciation method charges cost evenly throughout the useful life of a fixed asset.

This depreciation method is appropriate where economic benefits from an asset are expected to be realized evenly over its useful life.

Straight line method is also convenient to use where no reliable estimate can be made regarding the pattern of economic benefits expected to be derived over an asset's useful life.

Formula

Straight line depreciation can be calculated using any of the following formulas:

● Depreciation per annum=( Cost   −   Residual Value )Useful Life
● Depreciation per annum=( Cost   −   Residual Value )   x   Rate of depreciation

Where:

Cost is the initial acquisition or construction costs related to the asset as well as any subsequent capital expenditure.Residual Value, also known as its scrap value, is the estimated proceeds expected from the disposal of an asset at the end of its useful life. The portion of an asset's cost equal to residual value is not depreciated because it is expected to be recovered at the end of an asset's useful life.Useful Life is the estimated time period that the asset is expected to be used starting from the date it is available for useup to the date of its disposal or termination of use. Useful life is normally expressed in units of years or months.Rate of depreciation is the percentage of useful life that is consumed in a single accounting period. Rate of depreciation can be calculated as follows:
Rate of depreciation=1  x   100%Useful Life

e.g. rate of depreciation of an asset having a useful life of 8 years is 12.5% p.a.