Straight Line Depreciation

Straight Line Depreciation

Example: For $5 million, Company XYZ purchased a machine that will have an estimated useful life of five years. The company also estimates that in five years, the company will be able to sell it for $500,000 for scrap parts.

Depreciation Expense = ($5,000,000 - $500,000)/5

Depreciation Expense = $900,000

Depreciation

Depreciation: 

It is a method of allocating cost of a tangible asset over its useful life.

Tangible assets e.g. Buildings, Vehicle,inventory,computer, supplies,microwave oven, telephones, refregerator etc.

Useful life means the duration of its usefulness. For example a computer can be used for five years. Then its useful life is 5 years.