How is straight-line depreciation calculated for an asset?

Straight-line depreciation is calculated by taking the initial cost of the asset, subtracting its salvage value (the estimated value at the end of its useful life), and then dividing that number by the asset's useful life. This method ensures that the asset depreciates evenly over its useful life, allowing businesses to evenly distribute the cost of the asset as an expense over time, which can be crucial for financial reporting and tax purposes.

The formula emphasizes the importance of both the cost of the asset and its expected residual value, reflecting a realistic value that businesses can anticipate receiving from the asset once it is no longer in use. This method is straightforward and widely used because of its simplicity and ease of application in financial records.

In contrast, the other options do not accurately represent the components or structure needed for proper depreciation calculation. For instance, adding the salvage value instead of subtracting it would incorrectly inflate the expense, while utilizing multiplication or incorrect groupings violates the principles of straightforward depreciation calculation.