 # Straight-Line Depreciation (with salvageable value)

Scenario: On March 1st, 2022 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 on the printing press over the 4 years with the straight-line depreciation method.

We can use the following formula to determine the annual depreciation on our lemonade machine.

Annual Depreciation = (Original Cost - Residual Value) / (Service Life)

In this scenario, we're given the following values...

Scenario: On March 1st, 2022 you buy a lemonade machine for \$500. At the end of its 4 year life, it'll have \$100 of salvageable value.

Write the adjusting entry on March 1st, 2023 for depreciation on the lemonade machine with the straight-line depreciation method.

...which can be plugged in like so:

Annual Depreciation = (Original Cost - Residual Value) / Service Life
Annual Depreciation = (\$500 - \$100) / 4 years

Residual value (a.k.a. salvageable value) is the value of the equipment at the end of its life.

This means that our lemonade machine depreciates by \$100 per year!

Annual Depreciation = (Original Cost - Residual Value) / Service Life
Annual Depreciation = (\$500 - \$100) / 4 years
Annual Depreciation = \$400 / 4
Annual Depreciation = \$100

Annual Depreciation = (Original Cost - Residual Value) / Service Life
Annual Depreciation = (\$500 - \$100) / 4 years
Annual Depreciation = \$400 / 4
Annual Depreciation = \$100

This means that in our accounting books, our lemonade machine will depreciate by \$100 consistently each year!