In the straight line method, the annual depreciation of the property is
- A(Original cost − Annual sinking fund)/Life in years
- B(Original cost + Annual sinking fund)/Life in years
- C(Original cost − Scrap value)/Life in yearsCorrect
- D(Original cost + Scrap value)/Life in years
Solution
Concept
Straight line method of calculating depreciation
Formula
(Original cost - Scrap value) / Life in years
Step-by-step solution
1. The straight line method assumes a uniform rate of depreciation throughout the life of an asset. 2. Annual depreciation is calculated using the initial cost, salvage/scrap value, and service life. Answer: C
Explanation
The straight line method assumes that a property loses value uniformly over its useful lifespan. The total depreciable amount is calculated as the original cost minus the scrap value, which is then divided equally by the number of years of life. Therefore, option C provides the correct formula for annual depreciation.
Why the other options are wrong
A) Subtracting the annual sinking fund from original cost does not give the depreciation formula. B) Adding the annual sinking fund incorrectly combines depreciation with sinking fund calculations.
Shortcut
Straight Line Depreciation = (Original Cost - Scrap Value) / Life in years.
Common mistake
Adding scrap value instead of subtracting it from the original cost, or confusing scrap value with sinking fund.
Correct answer: C) (Original cost − Scrap value)/Life in years