What Is Straight Line Basis?

Straight line basis is a method of calculating depreciation and amortization. Also

known as straight line depreciation, it is the simplest way to work out the loss of
value of an asset over time.

Straight line basis is calculated by dividing the difference between an asset's cost
and its expected salvage value by the number of years it is expected to be used.

KEY TAKEAWAYS

 Straight line basis is a method of calculating depreciation and amortization,

the process of expensing an asset over a longer period of time than when
it was purchased.
 It is calculated by dividing the difference between an asset's cost and its
expected salvage value by the number of years it is expected to be used.
 Straight line basis is popular because it is easy to calculate and
understand, although it also has several drawbacks.
 Alternatives often involve accelerating depreciation schedules.
Understanding Straight Line Basis
In accounting, there are many different conventions that are designed to match
sales and expenses to the period in which they are incurred. One convention that
companies embrace is referred to as depreciation and amortization.

Companies use depreciation for physical assets, and amortization for intangible

assets such as patents and software. Both conventions are used to expense an
asset over a longer period of time, not just in the period it was purchased. In
other words, companies can stretch the cost of assets over many different time
frames, which lets them benefit from the asset without deducting the full cost
from net income (NI).

Calculating Straight Line Basis

The challenge is determining how much to expense. One method accountants
use to determine this amount is the straight line basis method.

To calculate straight line basis, take the purchase price of an asset and then
subtract the salvage value, its estimated sell-on value when it is no longer
expected to be needed. Then divide the resulting figure by the total number of
years the asset is expected to be useful, referred to as the useful life in
accounting jargon.