Depreciation Expense Recognition

A company’s long-lived assets refer to PPE, natural resources, and intangible assets. Since these assets provide economic value over multiple years, the cost of these assets is allocated over multiple years.

Depreciation is the allocation of the cost of an asset to expense over its useful life in a rational and systematic manner.

There are various depreciation methods used by firms. We will look at the following three methods:

  • Straight Line Method
  • Accelerated Methods of Depreciation

Straight Line Method

The straight-line method associates the long-lived asset’s usefulness with its age.

Straight-Line Expense = (Cost – Salvage Value)/n

where n = number of years in asset’s useful life


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