Straight-Line Method of Depreciation (Cambridge (CIE) IGCSE Accounting): Revision Note

Straight-line depreciation

What is the straight-line method of depreciation?

• The straight-line method of depreciation assumes that a non-current asset loses value at a constant rate over its useful life

  • This means that the expense for its depreciation is the same each year

  • The net book value can reach $0

    • This is when the asset is fully depreciated

• You could be given the depreciation rate as a percentage of its original value

  • E.g. depreciation could be charged at 20% of its original cost

• Or you could be expected to calculate the depreciation using:

  • The number of years that the non-current asset will be used

  • The expected value of the non-current asset at the end of its working life

    • This value could be $0

    • The expected value is also called the residual value

• This method is usually used when the asset will be equally valuable for each year of its use

  • For example, fixtures and fittings, equipment, etc

How do I calculate depreciation using the straight-line method?

• If you are given the percentage for the depreciation

  • Find the percentage of the original amount

  • This will be the yearly depreciation charge

• If you are not given the percentage

  • Calculate the expected loss in value during the expected life of the non-current asset

    • The original value minus the expected value at the end of its life

  • Divide the loss by the number of years it will be used

  • This will be the yearly depreciation charge