Which of the following formulas correctly computes annual straight-line depreciation for an asset?

• A. $Cost \times Double‑declining rate$
• B. $Cost - Salvage value$
• C. $\frac{Cost}{Useful life}$
• D. $\frac{(Cost - Salvage value)}{Useful life \left(years\right)}$

Answer: (D)

Verified step by step guidance

1. Understand that straight-line depreciation spreads the cost of an asset evenly over its useful life.
2. Identify the key components needed for the formula: the initial cost of the asset, the salvage value (residual value at the end of useful life), and the useful life in years.
3. Recall the straight-line depreciation formula, which calculates annual depreciation expense as the depreciable amount divided by the useful life:
4. \[ \text{Annual Depreciation} = \frac{(\text{Cost} - \text{Salvage Value})}{\text{Useful Life (years)}} \]
5. Note that the depreciable amount is the cost minus the salvage value, representing the total amount to be depreciated over the asset's life.
6. Confirm that this formula differs from other methods like double-declining balance, which uses a fixed rate applied to book value rather than a simple division.