How is straight-line depreciation calculated?

• A. Cost divided by the number of years of useful life
• B. Salvage value divided by useful life
• C. Depreciable cost divided by remaining useful life
• D. (Cost minus Salvage value) divided by Useful life

Answer: (D)

Straight-line depreciation spreads the amount the asset will lose in value evenly across its useful life. The amount you can depreciate is the cost minus the salvage value at the end of useful life, which is called the depreciable cost. Dividing that depreciable cost by the asset’s total useful life gives the same depreciation expense every year.

Using only cost would ignore salvage value and distort yearly expenses. Using salvage value alone would ignore the asset’s cost entirely. Dividing depreciable cost by the remaining useful life isn’t the standard approach unless you’re adjusting mid-life for a change in life expectancy; the usual method uses the total useful life.