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The most straightforward method you can use to calculate depreciation is the straight-line method. As the name implies, the straight-line method assigns depreciation evenly over the economic life of an asset. The starting amount is the asset's purchase price or initial cost, and the ending value is the asset's salvage value. If your asset has an economic life of ten years and the salvage value of zero, for example, the asset will depreciate by 10% each year, until its value reaches zero.
To calculate straight-line depreciation, you use the SLN function. The SLN function calculates the amount of depreciation for a given period, which is usually a year. The SLN function has three arguments: the initial cost of the asset, which is in cell B5, the salvage value of the asset, which is in cell B7, in this case, and the economic life of the asset, which I have in cell B9.
Close the parenthesis and there is the value. You'll see that in each of the five years of this asset's economic life, it will depreciate by $230 until it reaches its salvage value of $150. Straight-line depreciation is the most conservative approach you can take to depreciation. It assumes that you will hold on to the asset until the end of its economic life, so you should spread out the tax benefits of the depreciation while you still own the asset.
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