Teach the straight-line method step by step with worked examples and visible intermediate values
The Straight-Line Method
Sarah's accountant shows her the simplest way to spread the van's cost across its 5-year life. The method is called straight-line depreciation because the expense is the same — a straight, flat line — every single year.
Annual Depreciation Expense = (Cost − Salvage Value) ÷ Useful Life
= ($30,000 − $5,000) ÷ 5 years
= $25,000 ÷ 5
= $5,000 per year
Step-by-Step Breakdown
Find the depreciable base
Subtract the salvage value from the cost. This tells you how much total value the asset will lose over its life.
$30,000 − $5,000 = $25,000 depreciable base
Divide by useful life
Spread the depreciable base evenly across the number of years the asset will last.
$25,000 ÷ 5 years = $5,000 per year
Track accumulated depreciation and book value
Each year, add $5,000 to accumulated depreciation and subtract it from the cost to find the book value.
Full Depreciation Schedule
| Year | Annual Expense | Accumulated Depreciation | Book Value |
|---|---|---|---|
| Year 1 | $5,000 | $5,000 | $25,000 |
| Year 2 | $5,000 | $10,000 | $20,000 |
| Year 3 | $5,000 | $15,000 | $15,000 |
| Year 4 | $5,000 | $20,000 | $10,000 |
| Year 5 | $5,000 | $25,000 | $5,000 |
Notice: the annual expense stays at $5,000 every year. Accumulated depreciation grows by $5,000 each year. Book value shrinks by $5,000 each year until it reaches the $5,000 salvage value in Year 5.
Statement Impact
Each year, Depreciation Expense of $5,000 reduces net income. This matches the cost of the van to the revenue it helps generate.
Accumulated Depreciation grows each year, reducing the van's book value. By Year 5, book value equals the $5,000 salvage value.
Remember: Book Value = Cost − Accumulated Depreciation. This formula is the backbone of fixed-asset accounting and will appear throughout this unit.