Straight-Line Depreciation
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yrs
Straight-line depreciation spreads an asset's cost evenly over its useful life. It is the simplest and most common depreciation method: equal deductions each year until the asset reaches its salvage value.
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Tip: For tax purposes, US businesses can use MACRS (Modified Accelerated Cost Recovery System) which front-loads depreciation, giving bigger tax deductions in early years. This is usually more advantageous than straight-line.
- 1Annual depreciation = (Cost − Salvage value) / Useful life (years)
- 2Book value at year n = Cost − (Annual depreciation × n)
- 3Depreciation stops when book value reaches salvage value
- 4Used for accounting (GAAP) and taxes (depending on jurisdiction)
$50,000 machine, $5,000 salvage value, 10-year life=$4,500/year depreciation($50k−$5k)/10 = $4,500
$30,000 vehicle, $0 salvage, 5 years=$6,000/yearBook value halves in 2.5 years
| Method | Year 1 (on $100k asset) | Best for |
|---|---|---|
| Straight-line | $20,000 | Assets with steady use |
| Double declining balance | $40,000 | Fast early deductions |
| Sum-of-years digits | $33,333 | Moderate acceleration |
| Units of production | Varies by use | Production equipment |
| MACRS (US tax) | Varies by class | Tax optimization |
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Fun Fact
Under US GAAP, goodwill from acquisitions is no longer amortized (depreciated) on the income statement — it's tested annually for impairment instead. This change in 2001 significantly boosted reported earnings for acquisition-heavy companies.
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