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Straight-line depreciation method evenly disperses wear-and-tear on equipment over the course of its life.
Scenario: You buy a lemonade machine for $500. At the end of its 4 year life, it'll have $100 of salvageable value. Calculate the annual depreciation over the 4 years with the straight-line depreciation method.
Wear-and-Tear = Original Cost - Residual Value
Wear-and-Tear = $500 - $100
Wear-and-Tear = $400
Depreciation = Wear-and-Tear / Life
Depreciation = $400 / 4 years
Depreciation = $100 per year
We're dividing all the wear-and-tear evenly across the life of the equipment...
Depreciation = Wear-and-Tear / Life
...which is how the straight-line method "evenly disperses" depreciation on the equipment over its life!
