18.5.1. Straight Line Method (SLM)

Try these first

1. 1.

   Calculate the annual depreciation for an asset costing $12,000 with a residual value of$2,000 and a useful life of 10 years.

   Hint

   Use the SLM formula: (Cost - Residual) / Useful Life.

2. 2.

   If an asset's cost is $15,000 and it has a residual value of$1,500 over a useful life of 5 years, what is its annual depreciation?

   Hint

   Remember the formula!

3. 3.

   What does the Straight Line Method calculate?

   • Total value of an asset
   • Annual depreciation
   • Cash flow from an asset

   Hint

   Think about how we spread costs each year.

4. 4.

   True or False: The residual value contributes positively to the depreciation calculation in SLM.

   • True
   • False

   Hint

   Remember how we derive the annual depreciation.

5. 5.

   A business acquires a vehicle for $40,000. It estimates the vehicle will have a residual value of$4,000 after 8 years. Calculate the annual depreciation using SLM. Now, what implications does this have if the vehicle is primarily used for long-distance transportation?

   Hint

   Use the SLM formula.

6. 6.

   If a company updates its asset schedule to include additional years or a higher residual value for an asset, how would that affect the SLM calculation for depreciation? Calculate using an original asset cost of $60,000, with a new estimated residual value of$6,000 over a useful life of 12 years instead of 10.

   Hint

   Re-evaluate the values and apply the SLM formula.