In accounting or taxation, straight-line depreciation
of an asset is a depreciation method where equal amounts of
depreciation expense will be taken in each year of the asset's useful life. Although it may not provide the most realistic
assessment of the asset's value over time, this method has the advantage of simplicity.
Straight-line depreciation may be acceptable for some purposes. In other contexts, it may only be an acceptable method of
depreciation in modified form, for example where adjustments are made to the depreciation value for the year of acquisition.
Example: Consider an asset is purchased during the year, where depreciation is calculated using the "half-month convention."
In using the "half-month convention," depreciation is often recorded to the nearest month. If an asset is purchased in the first
half of the month, it is deemed (for depreciation purposes) to have been purchased on the first day of that month. If an asset is
purchased in the second half of the month, it is deemed (for depreciation purposes) to have been purchased on the first day of
the following month. Since the equipment was purchased on September 14 (in the first half of the month), for depreciation
purposes the asset is assumed to have been purchased on September 1, and it is depreciated for only the 4 months remaining in the
year..
- Depreciationexpenseforfullyear
= (Costoftheasset -
Estimatedsalvagevalue)
/
Estimatedusefullife
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