Straight Line Depreciation Formula + Calculator

Consultation with accounting professionals is recommended when considering a change in depreciation method. Straight-line depreciation can be used for most tangible assets, such as buildings, vehicles, machinery, and equipment. However, certain assets, like those subject to rapid technological advancements or with irregular usage patterns, may require alternative depreciation methods. While most small business accounting software does not offer depreciation calculation, they do make it easy to record both accumulated depreciation and depreciation expense. Be sure to check out The Ascent’s small business accounting software reviews to help you make your choice. MACRS allows you to track and record depreciation using either the straight-line method or the double declining balance method.

You purchased and placed in service a rental house on March 2, 1984, for $98,000 (not including the cost of land). For 1985 through 1988, you figured your ACRS deductions using 11%, 9%, 8%, and 7% × $98,000. For 1989 through 1992, you figured your ACRS deductions using 6% for each year. For 1993 and 1994, the ACRS deduction is ($98,000 × 5%) $4,900 for each year.

Declining balance example

Note how the book value of the machine at the end of year 5 is the same as the salvage value. Over the useful life of an asset, the value of an asset should depreciate to its salvage value. Company A purchases a machine for $100,000 with an estimated salvage value of $20,000 and a useful life of 5 years. Next, divide this amount by the number of years in the asset’s useful lifespan, which you can find in tables provided by the IRS.

These assets typically have a predetermined useful life, which makes them suitable for the straight line depreciation method. For instance, a machine may have a useful life of 10 years, allowing the company to allocate its cost uniformly over the expected life. The units of straightline depreciation production method calculates depreciation expense based on the actual usage or production output of an asset. It is considered more accurate in reflecting an asset’s wear and tear than the straight-line approach, especially for assets whose usage significantly fluctuates.

Why Would You Not Choose This Method?

Once depreciation has been calculated, you’ll need to record the expense as a journal entry. The journal entry is used to record depreciation expenses for a particular accounting period and can be recorded manually into a ledger or in your accounting software application. When it comes to accounting and financial management, businesses often face the challenge of allocating the costs of their assets over their useful lives.

• The full year’s ACRS deduction for this item is $2,500 ($10,000 × 25%), the first year percentage from the 3-year table.
• Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use.
• Here’s a hypothetical example to show how the straight-line basis works.
• It means that the asset will be depreciated faster than with the straight line method.
• If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year.
• By estimating depreciation, companies can spread the cost of an asset over several years.