1. What is Linear Depreciation?

Linear depreciation, also known as straight-line depreciation, is a method of allocating the cost of a tangible asset over its useful life in equal annual amounts. It's the simplest and most commonly used depreciation method in accounting.

2. How Does the Calculator Work?

The calculator uses the linear depreciation equation:

Where:

• \( Cost \) — Original purchase price of the asset ($)
• \( Salvage \) — Estimated residual value at end of useful life ($)
• \( Life \) — Useful life of the asset in years

Explanation: The formula calculates the annual depreciation expense by spreading the depreciable base (cost minus salvage value) evenly over the asset's useful life.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for financial reporting, tax purposes, and business planning. It helps companies properly allocate asset costs and determine accurate net income figures.

4. Using the Calculator

Tips: Enter the original cost in dollars, estimated salvage value in dollars, and useful life in years. All values must be valid (cost > 0, salvage ≥ 0, life ≥ 1, and cost ≥ salvage).

5. Frequently Asked Questions (FAQ)

Q1: When should I use linear depreciation?
A: Linear depreciation is best for assets that provide consistent benefits over their useful life, such as buildings, furniture, and office equipment.

Q2: What's the difference between cost and salvage value?
A: Cost is the original purchase price, while salvage value is the estimated resale value at the end of the asset's useful life.

Q3: Can salvage value be zero?
A: Yes, if the asset is expected to have no residual value at the end of its useful life, salvage value can be set to zero.

Q4: How do I determine an asset's useful life?
A: Useful life is based on the asset's expected service period, which can be determined from industry standards, manufacturer recommendations, or company experience.

Q5: Are there other depreciation methods besides linear?
A: Yes, other common methods include declining balance, sum-of-years'-digits, and units-of-production methods, each suitable for different types of assets.