Straight Line Method (SLM)

The Straight Line Method — also known as the Fixed Instalment Method, or the Original Cost Method — is the simplest way of spreading an asset's cost over its useful life: an EQUAL amount of depreciation is charged in every accounting period throughout the asset's life, computed once when the asset is acquired and left unchanged unless the estimated life or scrap value is later revised.

Annual Depreciation = (Original Cost of Asset − Estimated Scrap/Residual Value) ÷ Estimated Useful Life (in years)

The corresponding Rate of Depreciation, expressed as a percentage, is always calculated on the ORIGINAL COST — never on the reducing book value — because it is the same original cost, and hence the same annual amount, that the calculation is based on every single year:

Rate of Depreciation (%) = (Annual Depreciation ÷ Original Cost of Asset) × 100

Because the identical rupee amount is subtracted from the ORIGINAL cost every year, a graph of the asset's book value over time is a perfectly straight, downward-sloping line — which is exactly where the method gets its name. By the end of the asset's estimated useful life, the book value works out to exactly the estimated scrap value (or to zero, if no scrap value was assumed), provided none of the original estimates change along the way. …