Home > Topics > Financial Accounting – I > Methods of Depreciation – Straight Line (SLM)

Methods of Depreciation – Straight Line Method (SLM)

Also called Fixed Installment Method or Original Cost Method.

Concept

Equal amount of depreciation charged every year.

Like: EMI - same amount every month!

Formula

Annual Depreciation = (Cost - Scrap Value) ÷ Useful Life

OR

Depreciation Rate = (1 ÷ Useful Life) × 100

Example 1: Basic

Machine Cost: ₹1,00,000
Scrap Value: ₹10,000
Life: 9 years

Annual Depreciation = (₹1,00,000 - ₹10,000) ÷ 9 = ₹10,000

Depreciation Schedule:

YearOpening ValueDepreciationClosing Value
11,00,00010,00090,000
290,00010,00080,000
380,00010,00070,000
............
920,00010,00010,000 (Scrap)

Example 2: With Percentage

Building Cost: ₹50,00,000
Depreciation Rate: 5% p.a. (SLM)
Scrap Value: Nil

Annual Depreciation = ₹50,00,000 × 5% = ₹2,50,000

After 10 years: ₹50,00,000 - (₹2,50,000 × 10) = ₹25,00,000

Advantages

  1. Simple to calculate
  2. Equal charge every year
  3. Asset fully depreciated by end of life
  4. Suitable for assets with uniform usage (buildings)

Disadvantages

  1. Ignores interest on capital
  2. Not suitable for assets with varying usage
  3. Repair costs increase over time, but depreciation stays same

Journal Entry

At year-end:

ParticularsDebitCredit
Depreciation A/c Dr.10,000
To Machinery A/c10,000
(Being depreciation charged @ SLM)

Quiz

Test Your Knowledge

Question 1 of 3

1. In SLM, depreciation amount is:

Different every year
Same every year
Increasing
Decreasing

💡 Final Wisdom: "SLM = Straight Line = Constant depreciation. Like a steady heartbeat - same every year!"

← PreviousNext →