Straight-line Method Example
The Asset Management application comes set up to calculate the straight-line method of depreciation. Use this method to calculate depreciation based on the cost of the asset being reduced by an equal amount in each accounting period over the asset's useful life.
Straight-line depreciation is frequently used when the asset's usability remains static regardless of its age.
For example, if an asset's value is $20,000.00, the useful life is 4 years, and the expected value at the end is $5000, the depreciation is $3,750 per year. This is calculated as follows:
| Criteria | Calculation |
|---|---|
| Asset's value | $20,000 |
| Useful life | 4 years |
| Expected value at end of cycle | $5,000 |
| Depreciable amount = $15,000 | $20,000 - $5,000 |
| Yearly depreciation = $3750 | $15,000 / 4 |
DPS uses the following information to calculate straight-line depreciation:
| Description | Location in DPS |
|---|---|
| Depreciation Basis | GL Cost tab of the Equipment hub |
| In Service Date | GL Book tab of the Equipment hub |
| In Service Period | Calculated from the in service date |
| In Service total periods | Number of periods between the current period and the in service period |
| Useful life in years | Comes from the assigned asset class (default) or the edited value.
GL Book tab of the Equipment hub |
| Asset Period per Year | General tab of |
| Averaging Convention | Full month |
| Depreciation Method | The method defines the percentage per year to depreciate the asset. Straight-line is defined as even across the useful life.
GL Book tab of the Equipment hub |
| Previous Accumulated Depreciation | Amount accumulated to date |
| Current Accumulated Depreciation | Amount accumulated to date |
| Period Depreciation | Amount depreciated for asset |
| Catch-up Posting | Current period |
This is how DPS performs straight-line depreciation:
| Step | Description |
|---|---|
| 1 | Take the depreciation basis from the GL Cost tab of the Equipment hub. |
| 2 | Calculate the total number of useful life periods. |
| 3 | Calculate the total number of in service periods. |
| 4 | Calculate the current cumulative depreciation as follows:
(depreciation basis) * (in service period/total periods) |
| 5 | Calculate the current period depreciation as follows:
Current Cumulative Depreciation - Previous Cumulative Depreciation |
| 6 | Copy the current accumulated depreciation amount to the previous accumulated depreciation amount. |
| 7 | Add this amount to the Depreciation tab of the Equipment hub. |