A depreciation method that allocates an equal amount of an asset's cost as expense in each period of its useful life.
Straight-Line Depreciation (SLM) is the simplest and most widely used depreciation method. It spreads the depreciable amount (cost minus salvage value) evenly over the asset's useful life. It's appropriate when the asset provides equal benefit in each period (e.g., furniture, buildings, office equipment). Under the Companies Act 2013 Schedule II, SLM rates are prescribed for different asset classes. For income tax purposes (Section 32), India prescribes Written Down Value (WDV) rates, so companies often maintain separate depreciation schedules for books (SLM) and tax (WDV), creating deferred tax differences. SLM is preferred for financial reporting because it's simple, consistent, and easy to understand. It's less suitable for assets that lose value faster in early years (where WDV or accelerated methods are more accurate).
Computer purchased for ₹80,000. Salvage value: ₹5,000. Useful life (Schedule II): 3 years. Annual depreciation: (₹80,000 − ₹5,000) ÷ 3 = ₹25,000/year. Year 1 NBV: ₹55,000. Year 2 NBV: ₹30,000. Year 3 NBV: ₹5,000 (salvage). Monthly charge: ₹25,000 ÷ 12 = ₹2,083.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
Use SLM when: the asset provides uniform benefit over its life (buildings, furniture), you want simple and consistent charges, or for financial reporting compliance. Use WDV when: the asset loses value faster initially (vehicles, technology), for tax purposes (mandatory in India under Section 32), or when matching higher maintenance costs in later years.
Depreciation is prorated for the period of use. If a ₹1,20,000 asset with 5-year life is bought on October 1 (half-year remaining): first year depreciation = ₹24,000 × 6/12 = ₹12,000. Some companies use a half-year convention (50% in first and last year) for simplicity.
The systematic allocation of the cost of a tangible asset over its useful life, representing the decline in value due to wear, use, or obsolescence.
A table showing the systematic allocation of a fixed asset's cost over its useful life, detailing annual depreciation expense and book value.
The estimated value of an asset at the end of its useful life, representing what it could be sold for after depreciation is complete.
Long-term tangible assets owned by a business that are used in operations and not intended for sale, such as land, buildings, machinery, vehicles, and equipment.
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