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Accounting · Depreciation and Amortisation

Straight Line Method of Depreciation (CA Foundation Accounting)

Updated 1 October 2026 · Fact-checked

The straight line method charges the same depreciation every year. Annual depreciation = (Original cost − Estimated residual value) ÷ Estimated useful life in years. You record it with a journal entry debiting Depreciation Account and crediting the Asset Account (or Provision for Depreciation), then transfer it to the Profit and Loss Account.

Understand Straight Line Method of Depreciation

Fixed assets like machinery, furniture and vehicles give service for many years. Their cost is not an expense of the year of purchase alone. Depreciation spreads the depreciable amount of an asset over its useful life, so each year bears a fair share of the cost.

Under the straight line method (also called the fixed instalment method), the charge is the same every year. The asset's book value falls by an equal amount each year, so a graph of book value against time is a straight line.

The depreciable amount is the original cost minus the residual value (the scrap value you expect to recover at the end of the useful life). Original cost includes the purchase price plus all costs needed to bring the asset to working condition, such as freight, installation and erection charges. Useful life is the period over which you expect to use the asset.

The method is simple and easy to apply. Its weakness is that it ignores the fact that repair costs usually rise as an asset ages, while the depreciation charge stays constant. Even so, it is the method most often asked at Foundation level.

Key rules to remember

Annual depreciation
Annual depreciation = (Cost − Residual value) ÷ Useful life (years)
Cost includes purchase price, freight, installation and other costs of getting the asset ready for use.
Rate of depreciation
Rate % = (Annual depreciation ÷ Original cost) × 100
Use this when a question gives a percentage on original cost. The rate applies to original cost every year.
Depreciation for part of a year
Depreciation for the period = Annual depreciation × (Months used ÷ 12)
Used when an asset is bought or sold during the year, if the question says to charge on a time basis.
Book value at year end
Book value = Cost − Accumulated depreciation
This is the amount shown in the balance sheet. Under this method it falls by an equal amount each year.

How to solve Straight Line Method of Depreciation questions

Use this order for any straight line question. It keeps your working clear and earns step marks.

  1. 1Find the original cost: add purchase price and all costs to bring the asset into use, such as freight and installation. Exclude later repairs, which are revenue expenses.
  2. 2Note the residual value and useful life. If residual value is not mentioned, take it as nil.
  3. 3Compute annual depreciation = (Cost − Residual value) ÷ Life. If a rate on cost is given, use Cost × Rate instead.
  4. 4Adjust for the period if the asset was bought or sold part-way through the year, using months.
  5. 5Pass the journal entry: Depreciation A/c Dr, To Asset A/c (or To Provision for Depreciation A/c). Add a narration.
  6. 6Post to the Asset Account (or Provision account), then transfer depreciation to Profit and Loss Account by Profit and Loss A/c Dr, To Depreciation A/c.
  7. 7Show the closing balance of the asset account (cost less depreciation) carried down, and reflect it in the balance sheet if asked.

Quickest way: Table-first shortcut for depreciation questions

When to use it: Use it when the question asks for ledger accounts over several years or only the book value at a given date.

  1. Write the annual depreciation first on the side of the page. Everything else uses this one number.
  2. For book value after n years, compute Cost − (Annual depreciation × n). You do not need to build every year.
  3. Draw the asset account in T-form with the date, particulars and amount columns. Leave the depreciation line for each year ready.
  4. Each year the closing balance falls by the same amount. Use this as a check: if differences are not equal, you have made an error.
  5. Keep the opening balance of each year equal to the previous closing balance, and write the dates as 1 April and 31 March consistently.

Common mistakes in Straight Line Method of Depreciation

  • Forgetting to deduct residual value before dividing by life.

    Students remember 'cost ÷ life' and skip the scrap value given in the question.

    Fix: Always write 'Cost − Residual value' in the first line of working, even when the residual value is nil.

  • Leaving out installation or freight from the cost.

    Students take only the invoice price as the cost.

    Fix: Read the question for every cost incurred to bring the asset to working condition and add them. Do not add later repairs.

  • Charging a full year of depreciation for an asset bought mid-year.

    Students ignore the purchase date.

    Fix: Count months from the date of purchase to the balance sheet date and multiply the annual figure by months ÷ 12.

  • Applying the rate on the reducing balance instead of original cost.

    Confusion with the written down value method.

    Fix: In straight line, the rate always applies to original cost, so the charge is the same each year.

  • Wrong journal entry: crediting Depreciation Account or debiting the Asset Account.

    Mixing up the effect on the asset and the expense.

    Fix: Depreciation is an expense, so debit it. The asset falls (or provision rises), so credit that. Then close depreciation to Profit and Loss Account.

Worked examples

Example 1

A company bought machinery on 1 April 2023 for ₹4,00,000 and spent ₹20,000 on freight and ₹30,000 on installation. Estimated residual value is ₹50,000 and useful life is 8 years. Calculate annual depreciation, pass the journal entry for the first year and show the Machinery Account for the first two years. Accounts are closed on 31 March each year and depreciation is charged directly to the asset.

Show the solution
  1. Original cost = 4,00,000 + 20,000 + 30,000 = ₹4,50,000.
  2. Depreciable amount = 4,50,000 − 50,000 = ₹4,00,000.
  3. Annual depreciation = 4,00,000 ÷ 8 = ₹50,000.
  4. Journal on 31 March 2024: Depreciation A/c Dr ₹50,000, To Machinery A/c ₹50,000 (being depreciation charged for the year).
  5. Journal: Profit and Loss A/c Dr ₹50,000, To Depreciation A/c ₹50,000 (being depreciation transferred).
  6. Machinery A/c 2023-24: Debit side: 1 April 2023 To Bank ₹4,50,000. Credit side: 31 March 2024 By Depreciation ₹50,000; By Balance c/d ₹4,00,000.
  7. Machinery A/c 2024-25: Debit side: 1 April 2024 To Balance b/d ₹4,00,000. Credit side: 31 March 2025 By Depreciation ₹50,000; By Balance c/d ₹3,50,000.

Answer: Annual depreciation is ₹50,000. Book value is ₹4,00,000 on 31 March 2024 and ₹3,50,000 on 31 March 2025.

Example 2

A firm bought furniture on 1 July 2023 for ₹1,20,000. Life is 10 years and residual value is nil. Books close on 31 March. Depreciation is charged using the straight line method and credited to a Provision for Depreciation Account. Find depreciation for 2023-24 and show the journal entry and the Provision for Depreciation Account for that year.

Show the solution
  1. Annual depreciation = (1,20,000 − 0) ÷ 10 = ₹12,000.
  2. Months used in 2023-24: July to March = 9 months.
  3. Depreciation for 2023-24 = 12,000 × 9 ÷ 12 = ₹9,000.
  4. Journal on 31 March 2024: Depreciation A/c Dr ₹9,000, To Provision for Depreciation A/c ₹9,000.
  5. Journal: Profit and Loss A/c Dr ₹9,000, To Depreciation A/c ₹9,000.
  6. Provision for Depreciation A/c: Credit side: 31 March 2024 By Depreciation ₹9,000. Debit side: 31 March 2024 To Balance c/d ₹9,000.
  7. Balance sheet: Furniture is shown at cost ₹1,20,000 less provision ₹9,000 = ₹1,11,000.

Answer: Depreciation for 2023-24 is ₹9,000. The furniture account stays at ₹1,20,000 and the provision is ₹9,000, giving a net book value of ₹1,11,000.

Exam tips

  • Write the formula with the numbers substituted before giving the answer. Examiners award marks for method even if arithmetic slips.
  • Read whether depreciation is charged directly to the asset or through a Provision for Depreciation Account. This changes the ledger, so decide before drawing it.
  • Check the date of purchase and the year-end. Time-based depreciation is a frequent trap.
  • Always show the transfer to Profit and Loss Account as a separate journal entry or ledger line.
  • Label every ledger entry with a date and a clear particular such as 'By Balance c/d', as presentation earns marks.

Practice questions from Depreciation and Amortisation

Straight Line Method of Depreciation: frequently asked questions

What is the formula for the straight line method of depreciation?

Annual depreciation = (Original cost − Residual value) ÷ Useful life in years. If a rate on cost is given, annual depreciation = Original cost × Rate. The charge is the same every year.

Is straight line method the same as fixed instalment method?

Yes. Both names refer to charging an equal amount of depreciation each year. The book value falls by the same amount every year.

What is the journal entry for depreciation under the straight line method?

Debit Depreciation Account and credit the Asset Account, or the Provision for Depreciation Account if one is kept. At year end, debit Profit and Loss Account and credit Depreciation Account to transfer the charge.

What if residual value is not given in the question?

Take it as nil. Then annual depreciation is simply cost divided by useful life. Do not invent a scrap value.