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Fundamentals of Accounting · Depreciation and Amortization

Straight Line Method of Depreciation: Formula and Examples

Updated 11 October 2026 · Fact-checked

The straight line method charges the same depreciation every year. Annual depreciation = (Cost of asset − Scrap value) ÷ Useful life in years. You debit Depreciation Account and credit Asset Account (or Provision for Depreciation), then transfer the charge to Profit and Loss Account at year end.

Understand Straight Line Method of Depreciation

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. This is the definition in AS 10. An asset such as a machine gives benefit for many years, so its cost is spread over those years instead of being charged in the year of purchase.

The straight line method (also called the fixed instalment method) is the simplest way to do this. The charge is the same every year. Depreciation is always worked out on the original cost, not on a reducing balance. AS 10 says straight-line depreciation gives a constant charge over the useful life if the residual value does not change.

AS 10 also says a business should choose the method that most closely reflects the expected pattern of consumption of the asset's future economic benefits, and apply it consistently from period to period. Straight line suits assets used evenly, such as furniture, buildings and office equipment.

Scrap value (residual value) is what you expect to get when the asset is finally sold. Cost minus scrap value is the depreciable amount. Only this amount is written off over the life of the asset.

Because the charge is equal each year, the book value (cost minus accumulated depreciation) falls by the same rupee amount every year, until it reaches scrap value at the end of the useful life.

Key rules to remember

Annual depreciation
Depreciation per year = (Cost − Scrap value) ÷ Useful life in years
Cost includes purchase price plus installation and other costs needed to bring the asset into use.
Rate of depreciation
Rate % = (Annual depreciation ÷ Original cost) × 100
Use this when the question gives the rate and you need the amount, or the reverse.
Depreciation with rate given
Depreciation = Original cost × Rate % × Period in years
Rate is applied on original cost every year. For part of a year, multiply by months ÷ 12.
Book value
Book value = Cost − Accumulated depreciation
Also called written down value at that date.
Depreciation entry
Depreciation A/c Dr. ; To Asset A/c (or To Provision for Depreciation A/c)
Then: Profit and Loss A/c Dr. ; To Depreciation A/c.

How to solve Straight Line Method of Depreciation questions

Use this order for any straight line question, whether it asks for the amount, the entry or the ledger account.

  1. 1Find the full cost of the asset: purchase price plus freight, installation and similar costs to make it ready for use. Do not add repairs.
  2. 2Note the scrap value and the useful life, or the rate given in the question.
  3. 3Compute annual depreciation: (Cost − Scrap value) ÷ Life, or Cost × Rate.
  4. 4Adjust for part of a year if the asset was bought or sold during the year (months used ÷ 12).
  5. 5Pass the journal entry: Depreciation A/c Dr., To Asset A/c (or Provision for Depreciation A/c). Then transfer to Profit and Loss A/c.
  6. 6Write the ledger account with date, particulars and amounts. Balance it and carry the closing figure down.
  7. 7Show the book value at each year end if asked: Cost − Accumulated depreciation.

Quickest way: One-line depreciation and book value shortcut

When to use it: Use when the question asks for depreciation or book value after several years and the full ledger is not demanded.

  1. Compute the yearly charge once: (Cost − Scrap) ÷ Life.
  2. Multiply by the number of years elapsed to get accumulated depreciation.
  3. Subtract from cost to get book value.
  4. Check that book value never falls below scrap value.

Common mistakes in Straight Line Method of Depreciation

  • Ignoring scrap value in the formula.

    Students remember Cost ÷ Life and forget the deduction.

    Fix: Always write (Cost − Scrap value) first. If no scrap value is given, treat it as nil.

  • Charging depreciation on the reducing book value each year.

    This mixes up the straight line method with the written down value method.

    Fix: In straight line, the base is always original cost, so the charge never changes.

  • Leaving out installation or freight from cost.

    Students take only the invoice price.

    Fix: Add all costs needed to bring the asset into use. Do not add later repairs, which are expenses.

  • Charging a full year for an asset bought part-way through the year.

    Students overlook the purchase date.

    Fix: Multiply by months used ÷ 12 unless the question says to charge a full year.

  • Wrong side in the entry, such as crediting Depreciation A/c.

    Depreciation feels like a reduction, so students credit it.

    Fix: Depreciation is an expense, so debit it. Credit the asset or provision account, and close it to Profit and Loss A/c.

Worked examples

Example 1

Rohan Traders bought a machine on 1 April 2024 for ₹4,50,000 and spent ₹50,000 on installation. Estimated scrap value is ₹50,000 and useful life is 9 years. Find annual depreciation, pass the entry for the first year and give the machine account for the year ended 31 March 2025.

Show the solution
  1. Cost = ₹4,50,000 + ₹50,000 = ₹5,00,000.
  2. Depreciable amount = ₹5,00,000 − ₹50,000 = ₹4,50,000.
  3. Annual depreciation = ₹4,50,000 ÷ 9 = ₹50,000.
  4. Entry on 31 March 2025: Depreciation A/c Dr. ₹50,000; To Machine A/c ₹50,000.
  5. Transfer: Profit and Loss A/c Dr. ₹50,000; To Depreciation A/c ₹50,000.
  6. Machine A/c: Debit side: 1 April 2024 To Bank ₹5,00,000. Credit side: 31 March 2025 By Depreciation ₹50,000 and By Balance c/d ₹4,50,000. Both sides total ₹5,00,000.

Answer: Annual depreciation is ₹50,000. Book value of the machine at 31 March 2025 is ₹4,50,000.

Example 2

Meera Enterprises bought furniture on 1 July 2024 for ₹2,40,000. It charges depreciation at 10% per year on original cost by the straight line method. Books close on 31 March. Find depreciation for the year ended 31 March 2025 and for the year ended 31 March 2026, and the book value on 31 March 2026.

Show the solution
  1. Full-year depreciation = ₹2,40,000 × 10% = ₹24,000.
  2. First year: furniture used from 1 July 2024 to 31 March 2025 = 9 months.
  3. Depreciation 2024-25 = ₹24,000 × 9 ÷ 12 = ₹18,000.
  4. Depreciation 2025-26 = full year = ₹24,000, because the base is still original cost.
  5. Accumulated depreciation at 31 March 2026 = ₹18,000 + ₹24,000 = ₹42,000.
  6. Book value = ₹2,40,000 − ₹42,000 = ₹1,98,000.

Answer: Depreciation is ₹18,000 for 2024-25 and ₹24,000 for 2025-26. Book value on 31 March 2026 is ₹1,98,000.

Exam tips

  • Read the question for scrap value, installation cost and purchase date before touching the formula.
  • In written answers, show the formula, the substitution and the result. Marks are given for method.
  • Always state whether depreciation is on original cost. Examiners look for this in straight line answers.
  • For Paper 4 style MCQs, compute the yearly charge first, then test each option quickly.
  • Draw the asset account neatly with both sides balanced. Check that the totals agree.

Practice questions from Depreciation and Amortization

Straight Line Method of Depreciation in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Straight Line Method of Depreciation: frequently asked questions

What is the formula for straight line depreciation?

Annual depreciation = (Cost − Scrap value) ÷ Useful life in years. If a rate is given, use Original cost × Rate %. If no scrap value is given, take it as nil.

Is the fixed instalment method the same as the straight line method?

Yes. Both names mean the same method. The same amount is charged every year on the original cost of the asset.

What is the journal entry for straight line depreciation?

Debit Depreciation Account and credit the Asset Account, or Provision for Depreciation Account if the firm uses one. At year end, debit Profit and Loss Account and credit Depreciation Account.

Can a business change from straight line to another method?

AS 10 says the method should be reviewed at least at each financial year-end. If there is a significant change in the expected pattern of consumption of the asset's benefits, the method should be changed. Such a change is treated as a change in accounting estimate under AS 5.