Straight-line depreciation assumes the asset loses value at a constant dollar rate over its useful life. If the asset costs , has salvage value at the end of years, then the annual depreciation expense is
a constant for every year . The book value at the end of year is
A worked example. A $50,000 vehicle with $5,000 salvage value after 10 years: annual depreciation is (50,000 - 5,000)/10 = \4,500/year. Book value drops linearly from \50,000 to $5,000 over the 10 years.
Strengths. Simple. The depreciation expense is the same number every year, which makes financial projections easy. Commonly used for accounting purposes when there’s no strong reason to prefer another method.
Weaknesses. Doesn’t match how real assets lose value. A car loses 20-30% of its value the moment you drive it off the lot — far more than $4,500 of a $50,000 sticker. Most physical assets lose value faster early and slower later. SL underestimates early-life depreciation and overestimates late-life depreciation.
For tax purposes in Canada, SL is not the mandated method — the CRA uses Declining balance depreciation via the CCA system, which better reflects real value loss patterns. SL still has uses in financial accounting and in some specific asset classes (intangibles, certain leasehold improvements).
For the alternative depreciation model and its tax implications, see Declining balance depreciation and Capital cost allowance. For the broader topic see Depreciation.