Straight-line depreciation spreads the usable part of an asset’s cost equally across its useful life. You meet it whenever a business owns equipment, vehicles or fittings, and it returns in the income statement and the statement of financial position.
It builds on capital and revenue treatment, which tells you why an item is an asset in the first place. This lesson belongs to the depreciation and asset disposal module.
What does the straight-line method actually do?
A non-current asset such as an oven helps the business earn income for several years. Charging the whole cost to one year would make that year look poor and the later years look better than they are. Depreciation shares the cost out.
With the straight-line method, the charge is the same every year:
Annual depreciation = (cost − residual value) ÷ useful life in years
Some questions give a rate instead, such as “15% of cost per year”. Then the annual charge is cost × rate. The two versions are the same idea, so use whichever the question supplies.
How is the entry recorded?
Each year-end, two accounts change:
- Debit the depreciation expense account. This is a cost for the year and goes to the income statement.
- Credit the accumulated depreciation account. This keeps the running total of depreciation and sits against the asset.
The asset account itself is left at cost. In the statement of financial position, show cost, less accumulated depreciation, equals carrying amount (also called net book value).
Worked example
Kenanga Bakery buys an oven for RM 24,000. It expects to use it for 5 years and then sell it for RM 3,000. The business uses the straight-line method.
Find the annual charge, the entries and the carrying amount after Year 3.
Step 1, depreciable amount: 24,000 − 3,000 = RM 21,000.
Step 2, annual charge: 21,000 ÷ 5 = RM 4,200 a year.
Step 3, the entry each year:
| Account | Debit (RM) | Credit (RM) |
|---|---|---|
| Depreciation expense | 4,200 | |
| Accumulated depreciation, oven | 4,200 |
Step 4, accumulated depreciation after 3 years: 4,200 × 3 = RM 12,600.
Step 5, carrying amount after Year 3: 24,000 − 12,600 = RM 11,400.
Statement of financial position extract:
| RM | |
|---|---|
| Oven at cost | 24,000 |
| Less accumulated depreciation | (12,600) |
| Carrying amount | 11,400 |
Check: after the full 5 years, accumulated depreciation is 4,200 × 5 = 21,000 and the carrying amount is 24,000 − 21,000 = RM 3,000, which is exactly the residual value. That ending figure is a quick test of your arithmetic.
The mistake to watch for
A common slip is to divide the whole cost by the life and ignore the residual value.
Mistaken answer: 24,000 ÷ 5 = RM 4,800 a year.
After 5 years this gives accumulated depreciation of 24,000 and a carrying amount of zero, but the business expects RM 3,000 back, so the asset has been written down too far.
The correction is to subtract the residual value first, every time the question mentions one. A second slip is to credit the oven account instead of accumulated depreciation. Unless the question tells you otherwise, keep the cost visible and credit the accumulated depreciation account.
Check yourself
Try these on paper, then open each answer.
1. A machine costs RM 18,000, has a residual value of RM 2,000 and a useful life of 4 years. Find the annual straight-line depreciation.
Show answer
(18,000 − 2,000) ÷ 4 = 16,000 ÷ 4 = RM 4,000 a year.
2. Equipment costing RM 50,000 is depreciated at 10% of cost per year, with no residual value. Find the carrying amount after 3 years.
Show answer
Annual charge = 50,000 × 10% = RM 5,000. Accumulated depreciation after 3 years = 5,000 × 3 = RM 15,000. Carrying amount = 50,000 − 15,000 = RM 35,000.
3. A printer costing RM 9,600 is depreciated by RM 1,500 a year over 5 years. What residual value was assumed?
Show answer
Total depreciation over the life = 1,500 × 5 = RM 7,500. Residual value = 9,600 − 7,500 = RM 2,100.
Where this leads next
Many questions use a different pattern in which the charge falls each year, so move on to reducing-balance depreciation. When you have both methods, the depreciation and disposal practice set mixes them with disposals. The double-entry and ledger trainer lets you post the entry and check the sides, and the percentage-base explorer helps when a rate is applied to a changing base.
Some students follow the calculation but lose track of which account holds which figure. That is the kind of pattern our teachers look for in online one-to-one Accounting tuition.