Straight-line Depreciation

Straight-line depreciation is a depreciation method that results in a constant reduction of an assets written down value over the useful life of the asset, providing its residual value does not change.

\begin{align} Depreciation &= \frac{ (Opening\ WDRC-Residual\ Value) * Period\ (days)}{RUL\ (days)} \end{align}

The amount of depreciation due for a given period can be calculated by mulitiplying the difference between the WDRC of an asset at the start of the period and its residual value by the period in days and dividing the answer by the assets RUL. The above formula results in a graph similar to the one below.


The effect of inflation on WDRC

The above graph is typical of the graphs you see when looking at most articles on straight line depreciation, but it is only a accurate representation of how WDRC will change in a zero inflation environment. The graph below shows how WDRC varies over time when inflation is considered.

External Links & References

  1. Has straight-line depreciation exceeded its useful life? (APV)
  2. Google Search
  3. Replacement Cost and WDRC over time (Excel Spreadsheet)
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