What is the simplified formula for straight-line depreciation?

The simplified formula for straight-line depreciation is accurately represented by taking the asset's purchase price, subtracting the estimated salvage value, and then dividing by the estimated useful life of the asset. This formula captures the idea that an asset loses value over time in a consistent, linear manner.

By subtracting the salvage value, which is the anticipated value of the asset at the end of its useful lifespan, you focus solely on the amount that is subject to depreciation — that is, how much value the asset will lose during its use. Dividing this amount by the estimated useful life gives you a consistent yearly expense that reflects the decrease in value each year.

This method is commonly adopted because it simplifies accounting by providing a predictable expense that can be easily recorded each accounting period. It is essential for both financial reporting and tax calculations, allowing businesses to allocate costs systematically over the period in which the asset is used.