Debitoor Dictionary

Accounting terms explained in a simple way

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What is Straight Line Depreciation?

Definition: Straight Line Depreciation is calculated by taking the price paid for the asset, deduct the residual or scrap value and divide the balance over the number of years that asset will benefit your company.

Straight Line Depreciation is probably the most common and easiest depreciation method to use. There are normally guidelines set out by a company as to how long they will depreciate an asset and this will depend on the type, for example, computer equipment.

Depreciating Technology

Technology moves at such a fast pace that a purchased laptop or PC will depreciate a lot quicker than e.g. a plant and machinery. So the term that computer equipment is depreciated will be a consideration and is normally 2 to 3 years.

To calculate the amount to depreciate you will need to do the following.

Example

Asset price paid £3,520 Less residual value £100 Amount to be depreciated £3,420 Life of asset 3 years (36 months) £3,420 / 3 = £1,140pa £95 pm