What is Straight-Line Depreciation?

• A. Acquisition price divided by 2.
• B. Salvage value divided by useful life.
• C. (Acquisition price + salvage value) / useful life.
• D. ACQUISITION PRICE minus SALVAGE VALUE divided by USEFUL LIFE.

Answer: (D)

Straight-line depreciation allocates the asset’s depreciable base evenly over its useful life. The depreciable base is the amount that will actually be expensed, calculated as the acquisition price minus the expected salvage value at the end of life. The depreciation expense each year is this base divided by the useful life, so you get a fixed amount every year.

This is the reason the correct approach is (acquisition price minus salvage value) divided by useful life. If salvage value is ignored or added to cost incorrectly, the annual depreciation would be too large or too small, or it would double-count salvage value.

For example, if you buy equipment for 100,000 with a salvage value of 10,000 and a 10-year life, straight-line depreciation is (100,000 − 10,000) / 10 = 9,000 per year. The same amount each year until the asset is fully depreciated.