SL Depreciation
The first step in calculating depreciation for depreciation method SL is to calculate the adjusted basis. The formula for calculating the adjusted basis is:
|
Original Cost - Salvage Value |
= |
Adjusted Basis |
The formula for calculating straight-line depreciation is:
|
Adjusted Basis
|
= |
Annual Depreciation |
Here is an example:
|
Original Cost: |
$14,000 |
|
Salvage Value: |
$2,000 |
|
Placed-in-service Date: |
04/16/2021 |
|
Estimated Life: |
5 Years |
|
Fiscal Year-End: |
December |
First, calculate the adjusted basis:
|
$14,000 - $2,000 |
= |
$12,000 |
Next, calculate the annual depreciation:
|
$12,000 |
= |
$2,400 |
Year 1:
|
$2,400 |
X |
8 * |
= |
$1,600 |
* The SL depreciation method uses the midmonth averaging convention. Because the asset was placed in service after the 15th day of the month, it receives no depreciation in April. The asset receives 8 months of depreciation in the first year.
Years 2 through 5:
In years 2 through 5, the asset receives the yearly depreciation of $2,400 (as calculated above).
Year 6:
|
$2,400 |
X |
4
|
= |
$800 |
In the final year, the asset receives 4 months of depreciation.