Q.An asset costing ₹15,000 is expected to have a useful life of 5 years and a scrap value of ₹3000. Find the annual depreciation charge using the straight-line method.
Straight Line Depreciation spreads the loss in value evenly over the asset’s life. The annual charge is the cost minus scrap value divided by the number of years: ₹2,400 per year.
The idea behind Straight Line Depreciation is simple: an asset loses value every year because it gets used, wears out, or becomes outdated. Instead of guessing how much it loses each year, we assume it loses the same amount every year over its useful life. The total loss is the difference between what you paid (cost) and what it’s worth at the end (scrap value). Divide that evenly across the years, and you get the annual depreciation charge.
Let’s apply this to the given numbers.
- Identify the cost and scrap value. The asset was bought for ₹15,000. After 5 years, it can be sold for ₹3,000. So the total amount that will be “used up” or lost is:
- Spread this loss evenly over the useful life. The useful life is 5 years. Under straight line method, each year bears an equal share:
- Compute the result.
A common mistake is to forget to subtract the scrap value. If you simply divided ₹15,000 by 5, you’d get ₹3,000 — which overstates the depreciation because it ignores that the asset still has some value at the end. Always use (cost – scrap value) as the base.
The straight line method is the simplest and most commonly used for book depreciation in Indian exams. The formula is:
It gives a constant charge each year, making profit calculations predictable.
The annual depreciation charge is ₹2,400.
Unlock everything free for 14 days
- Full step-by-step solutions
- Concept-first explanations
- Methods, shortcuts & mistakes
- PYQ mapping + timed mock tests
Full access for 14 days. No credit card required.