Straight Line Depreciation Calculator


What is Straight Line Depreciation?

Any asset’s value depreciates with time, and businesses use various depreciation techniques towrite off their finances and realize real profits. With the single-line depreciation calculator, you can check out an assets value. An asset’s value is reduced uniformly over a predefined lifetime of an asset.

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By the end of this tenure, the asset either becomes inefficient for the business or perish entirely. It can, after that, get sold at a salvage value. The straight line depreciation method is a commonly used depreciation method due to its simplicity.

Benefits of Straight Line Depreciation Calculator

Depreciation of an asset is non-avoidable for any business. Many types of equipment depreciate at a constant rate over their lifespan. You should understand how a straight line depreciation gets calculated and the benefits associated with it. Using Vyapar straight line depreciation calculation comes with the listed services.

Easy calculations

Calculating depreciation with the straight line depreciation method is simple. You can quickly figure it using an online depreciation calculator by feeding the data in the depreciation formula.

Relaxation in Threshold limit

Also relaxation in threshold limit of aggregate turnover for service provider companies (lower than Rs. 20 lakh is exempted from paying tax & in case of North Eastern states, the threshold is at Rs.10 lakh) will give relief to the small businesses from lengthy taxation process.

No expertise required

You need not have tremendous mathematical knowledge to understand the concept of the straight line depreciation method. Once you know the idea, you can use it immediately to find depreciation.

Provides fixed value for every year

The value of depreciation using the straight line method is evenly distributed to all the years of an asset’s lifespan. So, the value of depreciation is fixed and constant for every financial year.

Eliminates mistakes

A simple technique used to calculate depreciation can help avoid unexpected errors in complicated depreciation calculation methods. You can easily cross verify the data by a simple calculation.

Need not hire a CA

For small businesses, it is crucial to saving on money to promote cost-cutting. If the assets you use for your business are not too costly, you can distribute their cost over the years of its lifespan. So, you do not need a CA do keep the accounts and balance sheets in check.

By availing of the benefits listed above, you can further ensure that you have made the right choice of using a straight line depreciation calculator. Additionally, it can help you save the time required to evaluate every year’s depreciation and store the values in a depreciation table.

How to calculate Straight Line Depreciation?

To calculate the straight line depreciation value of any asset, you need to gather some critical information. Most businesses calculate it every year by averaging the value of an asset when it is purchased and the salvage value at the end of the life of an asset. The useful life of an asset is predetermined at the time of purchase. Here are some fundamental values you need to know to calculate straight-line depreciation.

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1. Purchase Price: The value of your asset at the time of its purchase is slated as its purchase price. It is the first crucial information required to calculate the depreciation of an investment.
2. Salvage value: At the end of its useful life, the value of your asset is referred to as its salvage value. A businesscan sell the purchase at this price in the market at salvage value to gain some equity returns.
3. Useful Life: It is the expected time for which your asset is expected to stay useful. Once the useful life of an asset is over, your business might not get benefitted from keeping the aid at work.

Using the above information, anyone can easily calculate the yearly depreciation using a straight line depreciation method. Also, you can evaluate the depreciation rate for your asset.

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The practicality of straight line depreciation

Every accountant prefers straight line depreciation due to its ease of computing. It can get applied to any long-term asset, making it seamless for businesses. But if we get in practicality, the straight-line method does not reflect the usage of an asset. So, it may not become the right choice for certain depreciable assets.

For instance, if we look at the rapid transformation in the contemporary world in terms of technology, a straight-line depreciation method seems unsuitable. A computer, for example, loses more of its value in the first few years.

The technology for computer systems change rapidly, and thus a straight line depreciation method. After all, it would be inaccurate to assume that depreciation remains constant throughout their life.

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Straight-Line Depreciation Formula

To ease up calculations, use a depreciation formula for calculating the final values. You can useour online depreciation calculator to make sure there are no mistakes while performing calculations. The formula for calculating the straight-line depreciation for an asset is as listed below:

Annual depreciation cost = (Initial purchase value or cost of an asset - Estimated salvage value)/ Useful life of an asset
Also, you can calculate the straight line depreciation rate using the formulae listed below:Straight line depreciation rate = Annual cost of depreciation / (Initial purchase value or cost of an asset - Estimated salvage value)

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Straight Line Depreciation Example

Let’s assume that a business purchases a machine at a fixed cost, say 10,00,000. The salvage value of this item after a lifespan of five years is known to be 1,00,000. Now, let us understand the ways in which we can calculate the straight line depreciation for this machine.
1. Initial purchase value or cost of an asset: 10,00,000.
2. Initial purchase value or cost of an asset - Estimated salvage value: 10,00,000 - 1,00,000 = 9,00,000 = Total depreciable cost of an asset
3. Useful life of an asset: 5 years
4. Divide value in (2) by (3) = Annual depreciation amount = 9,00,000 / 5 = 1,80,000
The company will depreciate the machine at 1,80,000 for five years.
Further, you can calculate the depreciation rate after calculating the annual depreciation amount.
Depreciation rate = Annual depreciation amount / Total depreciable cost of an asset = 1,80,000 / 9,00,000 = 20%
As you can observe through the example above, the depreciation rate and depreciation cost areeasily calculated using the depreciation formulae.

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Frequently Asked Questions

Why is straight line depreciation used?

A straight line depreciation method is used to recognise a fixed amount of depreciation each year for any asset over its useful life. It is the best-suited depreciation method for small businesses who don’t want to complicate calculations about how they distribute depreciation over the years. By having fixed depreciation, companies can simply present the depreciation cost while filing taxes.
Further, if you do not have any particular way to calculate the usage of your asset over its tenure, it is better to get it depreciated evenly.

What are other popular types of depreciation methods?

Alongside straight line depreciation, there are other methods to calculate depreciation.To reflect the current value of an asset, it is sometimes better to opt for other depreciation methods. Further, a company can decide the way they would want to have depreciation calculated. Two other popular depreciation methods, the double-declining balance method and the unit of production methods, are getting for businesses.
The double-declining way is best for companies that have their assets fall when the market goes up. Units of production method are great where a quantity is associated with the number of kilometers travelled by taxi.

What is straight line depreciation? Give an example?

Straight line depreciation is a method to calculate the value that an asset loses over time till the end of its life span. Using this depreciation method, we estimate a fixed value that remains fixedfor every year of depreciation till it reaches its salvation value.
An example of straight line depreciation:
A company purchase one computer for a price of 5,00,000. The salvage value of this computer is 50,000 after it gets used for five years. The company needs to repurchase an asset every fiveyears to maintain confidentiality and upgrade to the latest technological developments.
Now, since the company is going to use the computer for five years, it is better to distribute its cost over five years. It would help in providing a better idea of fees and expenses that occur during a fiscal year.

Depreciation cost = (5,00,000 - 50,000) / 5 = INR 90,000

Further, you can calculate the depreciation rate for the asset:
Depreciation rate = 90,000 / (5,00,000 - 50,000) = 20%

How do you calculate straight line mid-month depreciation?

You can easily calculate the depreciation for a partial month. By using the straight-line depreciation calculator by Vyapar, you can get the fixed monthly depreciation cost of an asset. To get the mid-month depreciation, simply divide the monthly depreciation value by two. The reason is that the straight-line depreciation remains the same for every month.

Is depreciation calculated monthly or yearly?

You can use the Vyapar depreciation calculator to evaluate monthly or yearly depreciation for any asset. Even if you decide to calculate it on a monthly basis, you can easily convert it on an annual basis and vice versa.

Further, you can easily calculate monthly or yearly depreciation by using the depreciation rate. All you need to do is use Vyapar’s depreciation calculator to get a fixed depreciation rate. Once you know the depreciation rate, you can calculate monthly, quarterly, semi-yearly, or yearly depreciation instantly.

Is Straight line depreciation the same every year?

The straight line depreciation value stays fixed for each year. Once you calculate the final depreciation for a year, you can use the same value for the remaining years before the asset reaches its salvage value. Vyapar app can help you keep track of the straight-line depreciation values for your business and use them to help in filing taxes effectively.

How is straight line depreciation different from the various other methods?

There are several types of depreciation, and the most popular among them is straight-line depreciation. The straight-line method is the simplest among all as it reduces the value of any asset every year with an equal amount. On the other hand, in the double-declining method, the depreciation is adjusted so that you have more expense in the earlier years and lesser expense in the later years.

Another popular method used is units of production depreciation, and it works entirely differently. The depreciation cost in units of production method is based on the number of units an asset produces over time. So, if we compare it to the straight-line depreciation method, it hasonly a few things in common.

When should I use the straight line method?

The straight line method of depreciation is a widely used depreciation method due to its wide area of applications. Go through the list below to better understand where you can use the straight-line method of depreciation.

1. When you are a small business:
A small business does not require heavyweight ways to calculate depreciation. By using a simple method, you can evaluate the depreciation and focus on other areas of your business. Small businesses often use small-sized equipment that does not have a very high cost. So, even if you use a straight-line method, it does not have a heavy impact on your finances.

2. When you want to simplify things:
Complicating things by using a difficult depreciation method can do more harm than good. Not simplifying things could result in unnecessary trouble in the future. So, it is better to use a straight-line depreciation method that anyone can understand with a basic understanding of mathematics.

3. When you want to perform calculations quickly:
You have no time, and your business requires numbers to evaluate correctly. In such cases. You can opt for a straight-line depreciation calculator. It can help you assess how much you candepreciate every year.

How can straight line depreciation factor up into my accounting?

Straight line depreciation can get used in your accounting books by evaluating an assets’ ‘depreciation value over a period of a year. Using the straight-line depreciation calculator in Vyapar, you can determine the depreciation values and get them stored for each asset in your inventory. Further, you can use this data while filing taxes using Vyapar. It will help you save time from reentering all financial values in a year.