Straight line method to compute depreciation

Question

Briefly describe straight line method to compute depreciation. What are it merits and demerits?

Answer 1

It is the easiest and mainly often employed technique. The components employed to compute Straight Line Method are illustrated below:

i) Estimated life of Asset

ii) Cost of Asset

iii) Estimated Scrap vale-is the value of the asset at the end of life of the asset

Formula to calculate:

Depreciation = (Cost of Asset-Estimated Scrap Vale)/Estimated life of Asset in years

The main merits of this method are that an equivalent amount of depreciation is charged each year during the life of the Asset that makes the computation of depreciation simple.

However the drawback of this way is that the amount of depreciation charged on the asset in the later years is high because of the diminished value of the asset.