Straight Line Depreciation

The straight-line method of depreciation assumes that the rate of loss in value of an asset is constant over its useful life. This is illustrated in Figure 6.1 for an asset worth

CLOSE-UP 6.1

Method

Straight-line

Declining-balance

Sum-of-the-years'-digits

Double-declining-balance

150%-declining-balance

Units-of-production

Depreciation Methods Description

The book value of an asset diminishes bv an equal amount each year.

The book value of an asset diminishes by an equal proportion each year.

An accelerated method, like declining-balance, in which the depreciation rate is calculated as the ratio of the remaining years of life to the sum of the digits corresponding to the years of life.

A declining-balance method in which the depreciation rate is calculated as 2AVfor an asset with a sendee life of Nyears.

A declining-balance method in which the depreciation rate is calculated as 1.5/2Vfor an asset with a sendee life of TV years.

Depreciation rate is calculated per unit of production as the ratio of the units produced in a particular year to the total estimated units produced over the asset's lifetime.

Figure 6.1 Book Value Under Straight-Line Depreciation

($1000 Purchase and $200 Salvage Value After Eight Years)

Figure 6.1 Book Value Under Straight-Line Depreciation

($1000 Purchase and $200 Salvage Value After Eight Years)

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