How is depreciation calculated using the straight-line method?

Depreciation using the straight-line method is calculated by spreading the cost of an asset evenly across its estimated useful life. This method assumes that the asset will lose value at a consistent rate over its lifespan. To determine the annual depreciation expense, the salvage value (the estimated residual value of the asset at the end of its useful life) is subtracted from the initial cost of the asset. The resulting amount is then divided by the total number of years of the asset’s useful life.

This method is popular because it provides a simple and predictable way to expense assets, allowing for straightforward financial forecasting and budgeting. It’s also beneficial from an accounting perspective, as it aligns the expense recognition with the asset's usage over time.

The other choices do not accurately describe the straight-line method: evaluating cost based on future value misrepresents how the initial investment is handled; expensing the entire cost in the first year contradicts the spread-equal logic; and stating that depreciation increases each year suggests a declining balance method rather than the straight-line approach.