What Is Straight-Line Depreciation?

The straight line method (Straight Line Method), also known as the average age method, refers to a method of averagely depreciating fixed assets based on their estimated useful lives and distributing them to each period in a balanced manner. The depreciation amount for each period (year, month) calculated by this method is equal.

Depreciation on a straight-line basis

Without considering the impairment provision, the calculation formula is as follows:

Case 1: Guanhua Electronic Technology Research Institute purchased a new red flag with a price of 1 million yuan and planned to use it for 10 years. The net residual value rate was 5%. According to accounting standards and related regulations, what is the annual depreciation rate of this equipment?

Annual depreciation rate of fixed assets according to the formula = (1-expected net residual value rate) / expected service life (years) = (1-5%) / 10 × 100% = 9.5%

Case 2: Guanhua Electronic Technology Research Institute purchased a tower crane with a purchase cost of 120,000 yuan. The service life of the tower crane is 10 years and the net residual value rate is 5%. According to the accounting standards and relevant regulations of enterprises, depreciation is calculated by the straight-line method. What is the depreciation amount for the third year of the crane?

According to the formula: the annual depreciation rate = (1-5%) / 10 × 100% = 9.5% the third year depreciation amount = 120000 × 9.5% = 11400 yuan ^[2]