Which is the correct formula for calculating depreciation under the straight-line method?

The straight-line method of depreciation is a widely used approach for allocating the cost of an asset over its useful life. The correct formula is designed to reflect the idea that the asset will lose value evenly over time.

In this method, the depreciation expense is calculated by taking the initial cost of the asset, subtracting its salvage value (the estimated value at the end of its useful life), and then dividing that amount by the total number of years the asset is expected to be used. This results in an equal annual depreciation expense over the asset’s useful life, making it straightforward to apply in financial statements.

Using the formula (Cost of Asset - Salvage Value) / Useful Life, you can determine how much of the asset's cost is being expensed each year, thereby accurately reflecting the asset's cost over time in your financial reporting.