Straight Line Method
This is the simplest, and most commonly used, form of depreciation calculation and refers to reduction of the value as per a constant rate. The depreciation value is calculated by taking the original, purchase, or historical price, less the scrap (or salvage) value, and dividing it by the useful years or the number of years that the asset would be in use in the business. The rate of depreciation remains constant as a fixed expense throughout the years. This depreciation method is useful for those assets in which the usage remains uniform or consistent. Unfortunately, it does not take into account the fact that all assets do not deteriorate equally.
An example would be an alignment machine purchased for a body shop for $100,000. The straight line calculation is as follows:
Cost of Alignment Machine - $100,000
Less Salvage Costs – ($10,000)
Subtotal - $90,000
Years of Useful Life – 5
5 Years of Useful Life Divided by $90,000 = $18,000
So, for the first year, the alignment machine depreciation using the straight line method is $18,000 and the value on the accounting books at year end is $100,000 (purchase price) minus the depreciation ($18,000) = $82,000.
The straight line depreciation method continues until the useful life (5 years) of the alignment machine has been reached as seen in the screenshot below (click to enlarge).