# 3. Linear Depreciation

Linear (or straight-line) depreciation is a method used if the loss in value is likely to be even over the period. The depreciation is equal from year to year (that is, linear) and is based on the asset's acquisition value divided by its lifetime. According to the linear method, depreciation is done using the same amount every year, according to the formula:

Linear depreciation is done from the activation date.

## 3.1 Day Calculation

The asset's economic lifetime, expressed in periods, is registered for the linear method in 'FA Type. Connect Depreciations Types' (FAS077). A day calculation, instead of full periods, can be applied used for the linear method. The daily depreciation is then done the first and last year of an asset's lifetime and proportionally to the number of month days. Daily depreciation, which is based on the fiscal year, can be used for the linear method only. Whether depreciation will be calculated in full periods or daily is selected in the 'Daily depreciation' field in 'FA Depreciation Type. Open' (FAS050).

## 3.1.1 The Daily Depreciation Alternatives

The 'Daily depreciation' field in 'FA Depreciation Type. Open' (FAS050) determines how depreciation is calculated using linear depreciation:

0 = Depreciation is calculated per period. All periods have the same amount.

1 = Depreciation is calculated daily, depending on the number of days in each calendar month of the first year of the asset's lifetime.

2 = Depreciation is calculated daily, depending on the number of days in each calendar month of all years of the asset's lifetime.

When alternative 0 is selected, if the acquisition date is in the middle of a period then the depreciation is still calculated for the entire period.

## 3.2 Examples

Example 1

An asset that was purchased for USD 120,000 and has a lifetime of 60 months (five years) is depreciated with (120,000/60) = 2,000/month.

Example 2

A company buys an asset for USD 60,000 and it will be depreciated over 5 years starting on the activation date of May 25, 2000. During the first year, the depreciation is 60,000/5 = 12,000 x (366 – (31+29+31+30+24)) / 365 = 7,213. For the fifth and last year, the depreciation is 12,000 – 7,213 = 4,787. For all other years, the depreciation is 12,000.

Example 3

Monthly depreciation for the linear method can be done in the following way: A company buys an asset for USD 120,000 on August 15, 2001. The asset's lifetime is 52 months and the depreciation rate is set to 23.08.

Months Rate By Year By Day Comments
52 23.076923 27,692.31 75.86933614
Depreciation   120,000.00
1 1,210.59     16 days
2 2,269.86     30 days
3 2,345.52     31 days
4 2,269.86     30 days
5 2,345.52 10,441.35 109,558.65 31 days
6 2,307.69
7 2,307.69
Etc. until:
53 1,097.16 26,481.75 -

Depreciation by day is done during the period of August 15 to December 31 the first year, and until August 14 of the last year. Because of prorate days (16 days) during the first month, the asset's lifetime is increased by one month.

See the comparison between linear and declining balance method below.

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