Straight-line depreciation expenses an equal share of an asset's cost each year over its useful life: (cost minus salvage value) divided by years.
Straight-line depreciation is the simplest and most widely used method of spreading a fixed asset’s cost over its useful life: the same amount is expensed every year until only the salvage value remains. Buy a machine for €5,000, plan to use it for five years and sell it for €500, and straight-line depreciation charges €900 a year - no curves, no recalculation, the same figure every period.
The formula
Annual depreciation = (purchase cost - salvage value) ÷ useful life in years.
The numerator is called the depreciable base: the part of the cost you actually expect to consume. The same calculation is sometimes expressed as a rate instead - one divided by the useful life - so a five-year asset depreciates at 20% of its base per year.
Three inputs, all captured at purchase: what you paid, how long you expect to use it, and what you expect to get back at the end. Get those three right and the schedule writes itself.
A worked laptop example
A company buys a laptop for €1,400, expects four years of use, and estimates a €200 trade-in value at the end.
- Depreciable base: 1,400 - 200 = €1,200
- Annual charge: 1,200 ÷ 4 = €300
The book value falls in a straight line: €1,100 after year one, €800, €500, and finally €200 - exactly the salvage value, where depreciation stops. If the laptop is sold for more or less than €200, the difference appears as a gain or loss on disposal.
When straight-line fits
Straight-line suits assets that wear evenly and assets where nobody can credibly argue a fancier pattern: office furniture, shelving and racking, fit-outs, steady-duty machinery, and most everyday IT such as desktop computers. It is also the method of choice when predictability matters more than precision - the charge is identical every year, so budgets and forecasts stay flat.
It fits less well for equipment that loses most of its value early. A new smartphone sheds resale value fastest in its first year, which an equal annual charge does not reflect; declining balance depreciation front-loads the expense to match that curve.
Common mistakes
- Useful life guessed too long. A laptop scheduled over seven years is still on the books long after it left the building. Use realistic refresh cycles, not optimistic ones.
- Salvage value ignored or never revisited. Setting it to zero is fine and conservative; setting it high and never checking the secondhand market is how disposal losses appear.
- Depreciating ghosts. Items that were lost, scrapped or stolen keep accruing charges because nobody told finance. The depreciation schedule is only as good as the asset records behind it.
- Register and ledger drifting apart. The fixed-asset ledger says 40 laptops, the floor has 33. Periodic reconciliation against a physical count keeps the numbers honest.
Straight-line depreciation in practice
The method needs almost no maths, but it does need clean source data: purchase price, purchase date and expected useful life recorded per asset, plus a reliable note of when each item is disposed of so the schedule can stop. In AMPthilly, each asset record holds purchase price, date, supplier and expected useful life, with valuation and depreciation tracking on the Pro plan and CSV export for finance. However the numbers are kept, the habit that matters is the same: capture the three inputs the day the asset arrives, not at year-end.
Related terms
- Declining Balance Depreciation - the front-loaded alternative for fast-depreciating equipment
- Salvage Value - the end-of-life estimate subtracted from cost before dividing
- Book Value - cost minus accumulated depreciation, the figure the schedule produces
- CapEx - the capital purchases that depreciation spreads over time
- OpEx - day-to-day operating costs that are expensed immediately instead