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Understanding Straight Line Depreciation

The document explains the Straight Line Method (SLM) of depreciation, where an asset's value is reduced uniformly over its useful life until it reaches its residual value. It includes the formula for calculating annual depreciation, an example with a machine, and journal entries to record depreciation expenses. Additionally, it provides practice questions for further understanding of the method.

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Ghalib Hussain
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18 views7 pages

Understanding Straight Line Depreciation

The document explains the Straight Line Method (SLM) of depreciation, where an asset's value is reduced uniformly over its useful life until it reaches its residual value. It includes the formula for calculating annual depreciation, an example with a machine, and journal entries to record depreciation expenses. Additionally, it provides practice questions for further understanding of the method.

Uploaded by

Ghalib Hussain
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Method-1

Straight Line
Method
Learning Objectives

After studying this chapter the students will be able to:


 Understand and define the meaning of Straight Line Method.
 Identify the formula to compute deprecation through SLM.
 Understand the concept of Book value and Accumulated depreciation.
 Analyze the solve the numerical related to SLM.
 Prepare journal entries to record depreciation.

Contoso 2
S u i t e s
What is Straight Line Method?
 Under the straight-line method of depreciation, the value of an asset is reduced equally or uniformly
over each period until it reaches its residual value.

 It allocates the cost of an asset to expense evenly over years asset is used.

 The life of the asset is measured in years.

Formula

Annual Depreciation = Cost – Salvage Value = Depreciable Cost


Useful Life Useful Life

Contoso 3
S u i t e s
Straight Line Method - Computation
Example
 Cost of machine Rs.20,000
Annual Depreciation = 20,000 – 2,000 = 18,000 = 4,500
 Salvage Value Rs.2,000 4 4
 Useful Life = 4 years
0
Year 1 Year 2 Year 3 Year 4

Rs.15,500 Rs.11,000 Rs.6,500 Rs.2,000


Cost Rs.20,000
Salvage Value

- Rs.4,500 - Rs.4500 - Rs.4,500 - Rs.4,500

Depreciation per year is constant.

Contoso 4
S u i t e s
Straight Line Method – Journal Entries
Date Particulars PR Debit Credit
Year 1 Depreciation Expense 4,500
Allowance for Depreciation 4,500
(To record depreciation of machine).

Year 2 Depreciation Expense 4,500


Allowance for Depreciation 4,500
(To record depreciation of machine).

Year 3 Depreciation Expense 4,500


Allowance for Depreciation 4,500
(To record depreciation of machine).

Year 4 Depreciation Expense 4,500


Allowance for Depreciation 4,500
(To record depreciation of machine).

Contoso 5
S u i t e s
Straight Line Method – Depreciation Schedule

Year Computation Depreciation Accumulated Written


Expense Depreciation Down Value
Cost Rs.20,000
1 Depreciable cost / Useful life (18,000 / 4) 4,500 4,500 15,500
2 Depreciable cost / Useful life (18,000 / 4) 4,500 9,000 11,000
3 Depreciable cost / Useful life (18,000 / 4) 4,500 13,500 6,500
4 Depreciable cost / Useful life (18,000 / 4) 4,500 18,000 2,000

Contoso 6
S u i t e s
Straight Line Method – Practice Questions
 Cost of Computer Rs.8,000
 Residual Value Rs.2,000 Annual Depreciation = Cost – Salvage Value
 Useful Life = 4 years Useful Life

Year Computation Depreciation Accumulated Written


Expense Depreciation Down Value
Cost ?
1 Depreciable cost / Useful life (6,000 /4 1,500 ? ?
2 Depreciable cost / Useful life (18,000 / 4) 1,500 3,000 5,000
3 Depreciable cost / Useful life (18,000 / 4) 1,500 ? ?
4 Depreciable cost / Useful life (18,000 / 4) 1,500 ? ?

Contoso 7
S u i t e s

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