Straight Line Depreciation Rate Calculator
How to Calculate Straight Line Depreciation Rate
Straight-line depreciation is the simplest and most commonly used method for allocating the cost of a tangible asset over its useful life. It assumes that the asset provides the same amount of utility every year it is in service.
Understanding the Components
Asset Cost: This is the total purchase price of the asset, including shipping, taxes, and setup costs necessary to bring the asset to its working condition.
Salvage Value: Also known as residual value, this is the estimated amount the company expects to receive when selling or disposing of the asset at the end of its useful life.
Useful Life: This is the period during which the asset is expected to be productive for the business, usually expressed in years.
How to Calculate the Depreciation Rate
The straight-line depreciation rate is the percentage of the depreciable base that is written off each year. To calculate it manually:
- Subtract the Salvage Value from the Asset Cost to find the Depreciable Base.
- Divide 1 by the Useful Life (Years).
- Multiply by 100 to get the percentage.
Practical Example
Imagine a business purchases a delivery van for $35,000. They estimate the van will be useful for 6 years and will have a salvage value of $5,000 at the end of that period.
- Depreciable Cost: $35,000 – $5,000 = $30,000
- Annual Depreciation: $30,000 / 6 years = $5,000 per year
- Depreciation Rate: (1 / 6) = 16.67%
Each year for six years, the business will record $5,000 in depreciation expense on their income statement, reducing the carrying value of the van on the balance sheet until it reaches $5,000.