The Straight Line Method (SLM) spreads an asset’s depreciable cost evenly over its useful life using a simple, consistent formula. Read the full blog to understand the calculation, advantages, limitations, and real-world application in detail.
Businesses use different depreciation methods to ensure their balance sheets reflect the changing value of assets they own year after year. Since assets do not lose value at the same rate, accounting offers multiple approaches to systematically allocate their costs over time.
One of the simplest and most widely applied techniques is the Straight Line Method (SLM) of depreciation. It spreads an asset’s depreciable cost evenly across its useful life, making it easy to understand and implement.
In this blog, we will break down the meaning of the straight line method, its formula, a practical example, and more.
What is the Straight Line Method of Depreciation?
The straight line method of depreciation allows accountants to systematically reduce the value of a tangible asset, or amortize an intangible asset, over its useful life until it reaches its salvage value. This method assumes that assets lose a fixed monetary amount of value every year.
To calculate depreciation using SLM, you need three core components:
- Original cost of the asset
- Salvage or residual value
- Useful life of the asset
Each of these elements plays a specific role in its calculation. Let’s now see how they come together in the formula to determine the annual depreciation expense.
How to Calculate Depreciation Using Straight Line Method
When someone buys an asset for a business, they don’t expense the entire cost in one year under the straight line method. Instead, they spread that cost across the years the asset actually helps generate revenue.
The basic formula for annual depreciation under SLM is:
Annual depreciation expense = (Original Cost of the Asset − Salvage Value) ÷ Useful Life of the Asset
Let’s walk through this with a practical example to make the calculation clear.
Detailed Example: Step-by-Step Calculation
A business buys a delivery truck for ₹3,00,000. The accountant estimates that the truck will last for 5 years. At the end of those 5 years, the truck’s value is expected to be ₹50,000 (its salvage value).
Step 1: Identify original cost
The truck cost the business ₹3,00,000. This is the amount recorded in the asset account.
Step 2: Estimate salvage value
The expected salvage value is ₹50,000. It indicates what the business thinks it can recover when the truck is no longer in service.
Step 3: Determine useful life
The useful life of the truck is 5 years. This represents the period over which the truck will provide economic benefit.
Step 4: Apply the formula
Subtract the salvage value from the original cost to find the total depreciable cost:
₹3,00,000 − ₹50,000 = ₹2,50,000.
Now divide this amount by the useful life:
₹250,000 ÷ 5 years = ₹50,000.
Annual depreciation expense = ₹50,000
This means the business will record ₹50,000 as depreciation expense for the truck each year for five years. Over the full life of the truck, the total depreciation expense amounts to ₹2,50,000; the difference between the original cost and the salvage value.
Generally, accounting standards such as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) require that the depreciation method reflects the pattern in which the asset’s future economic benefits are expected to be consumed. In other words, companies must select a method that realistically represents how the asset generates value over time.
Now that we have understood how the straight line method works in practice, it is equally important to examine where it performs well and where its limitations begin.
Advantages and Disadvantages of Straight Line Method
Before applying any depreciation method, it helps to understand what it does well and where it may fall short. The straight line method stands out for its simplicity, but like every accounting technique, it comes with trade-offs.
Advantages of the Straight Line Method
1. Simple and easy to apply
The straight line method uses a clear formula and requires only three inputs: cost, salvage value, and useful life. Because of this, accountants find it easier to understand, implement and maintain.
2. Consistent expense recognition
This method records the same depreciation expense every year. That consistency makes financial statements more predictable and easier to analyze, especially when comparing performance across multiple periods.
3. Suitable for assets with uniform utility
Some assets deliver equal value year after year. Office furniture, buildings, or basic machinery often perform consistently over time. In such cases, spreading the cost evenly reflects their usage pattern reasonably well.
While these benefits explain why many companies prefer SLM, it is equally important to look at its limitations.
Disadvantages of the Straight Line Method
1. Ignores actual usage patterns
Not all assets lose value evenly. Some machines wear out faster in the early years. While SLM assumes constant wear, actual vehicles, for example, often experience higher maintenance and performance decline over time. SLM does not capture this variation.
2. Does not reflect accelerated obsolescence
In industries driven by technology, assets can become outdated quickly. The straight line method approach spreads depreciation evenly, even if the asset loses a significant portion of its market value early on.
3. May misalign expense and revenue patterns
If an asset generates higher revenue in its early years, SLM still records the same expense annually. This can create a mismatch between revenue and expense recognition in certain business models.
Understanding these advantages and disadvantages provides context for choosing the right method. To see how SLM compares with alternative approaches, let’s now explore the differences in the next section.
Straight Line Method vs Other Depreciation Methods
| Parameter | Straight Line Method | Written Down Value Method | Units Of Production Method |
| Basis of calculation | Cost minus salvage divided by useful life | Applies a fixed percentage to the asset’s book value each year | Depreciates based on actual usage or output produced |
| Pattern of expense recognition | Same depreciation expense every year | Higher depreciation in early years, lower in later years | Depreciation varies depending on production level |
| Suitable for | Assets that provide uniform benefit over time (e.g., buildings, furniture) | Assets that lose value quickly or become obsolete faster (e.g., tech, vehicles) | Assets where wear and tear directly depends on usage (e.g., manufacturing machinery) |
| Impact on profit in early years | Results in stable profit impact | Reduces profit more in initial years due to higher early depreciation | Profit impact fluctuates with production levels |
| Complexity | Simple and easy to calculate | Moderate | High (Requires tracking of actual output) |
Final Thoughts
Companies typically use the straight line method when an asset delivers consistent economic benefit year after year. It works best for assets such as buildings, office furniture, and basic equipment that do not experience sharp performance declines in their early years.
Businesses also prefer this method when they want stable and predictable expense recognition across accounting periods. Since it records the same depreciation amount every year, it simplifies financial planning, reporting, and performance comparison.
To summarize, the straight line method remains a foundational depreciation technique, especially for students and professionals who want to understand how accounting systematically matches asset cost with economic benefit over time.
