How to calculate depreciation using straight line method?

Solution

The solution is given below −

Cost of machine = Rs. 200000
Salvage value = Rs. 25000
Total life = 8 years

Formula

Straight line depreciation = (ADE) / (CA –SV)

Here ADE = Annual depreciation expenses, CA = Cost of the asset, SV = Salvage value

First method (using salvage value)

Cost of the asset – salvage value = 200000 – 25000 => 175000

Annual depreciation = ((cost of the asset) – (salvage value))/life of machinery

            = 175000/8

            = 21875

So by above calculations Rs. 21,875 will be depreciated from 200000 annually for 8 years.

Second method (if depreciation amount is known)

Straight line depreciation = (annual depreciation amount)/total depreciable cost

            = 21875/175000

       = 12.5%

From above table book value of the machinery at the end of 8 years is same as salvage value

Over the life of the asset it should be depreciate to its salvage value.