Straight-Line Method

The rate of depreciation is calculated by the following equation:

Dt =(1/n)(c-sv), (3-1)

where C=original cost of capitalized investment, D(=depreciation in year, t, SV=salvage value of capitalize investment, and N=number of years of depreciation.

This method can be illustrated by the following example, where it is assumed that the value of the equipment after 5 years is equal to $10,000, and this price is based on the value of the equipment at the sale after five years.

It is worth mentioning that salvage value is usually taken to equal zero.

Straight-Line Method
Подпись: Depreciation rate per year = і -
Подпись: sv c
Подпись: (3.2)
Подпись: Dt=-
Подпись: 10000 ^

Depreciation rate per year = (50000-10000)/5 = $8,000.

Table 3.2 Straight-line method

Year

Depreciation Value Per Year

Book Value at the End of the Year

0

8000

50000

1

8000

42000

2

8000

34000

3

8000

26000

4

8000

18000

5

8000

10000