Depreciation

The American term used to describe amortization.

Straight Line Amortization

Straight-line amortization expenses the same amount to expense each period over the useful life of the capital asset. There is a 2 step process used to calculate the amortization expense:

a) First calculate the amortization cost by subtracting the asset’s salvage or residual value from its total cost.

b) Secondly, divide this difference by # of years this asset will be useful.

The simple formula is summarized as:

Amortization Expense = (Total Cost of Capital Asset – Salvage Value) / # of Useful Years

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