 Hello, in this lecture we will define straight line depreciation. According to fundamental accounting principles, Wild 22nd edition of the definition of straight line depreciation is method that allocates an equal portion of the depreciable cost of plant asset cost minus salvage to each accounting period in its useful life. When we're thinking about the straight line depreciation, we're thinking about depreciation and this is the base method when thinking about any type of depreciation method. Most methods being compared to a straight line method depreciation itself, the idea of having property plants and equipment long lived tangible assets that we need to put on the books as an asset rather than an expense when we purchase them and then allocate that cost over the useful life of that asset in accordance with the matching principle. For example, if we had something like a tank here, we're going to say this is property plants and equipment that we're going to use in order to help us generate revenue in the future. We're going to put it on the books not as an expense when we purchase it, but as an asset at the time of purchase because we have not yet used it. It hasn't been consumed yet. It's kind of like an investment in that we're investing in the fixed assets to help us generate revenue in the future. As it does that, as it helps us achieve our goal to generate revenue, we want to allocate the cost to that time period in accordance with the matching principle. We're going to do that using depreciation and we're going to track the amount of depreciation we've had over the life using accumulated depreciation goal being that we tell our reader more than just what the book value is. We tell the reader what the cost is. We tell the reader what the expense for a certain time period that we have allocated that cost to and we tell the reader the accumulated depreciation that has happened over the useful life thus far as well as the fact that, look, this is an estimate. We're not sure exactly what the fair market value is, but we know what the book value is being the cost less the accumulated depreciation. For example, we're going to take the cost here. We're going to subtract out the salvage value. That's what we think we can scrap this piece of equipment for at the end of the useful life. So we're going to use it to help us generate revenue when we think it cannot be used anymore. We're not going to use it for whatever reason. Then it's not going to be used to help us generate revenue, but it still could have value. We could still sell it for something. That's the salvage value. If we subtract those out, then we're going to get the amount to be depreciated over the useful life leaving us with that salvage value. We're going to take the useful life the four years in this case usually given in book problems in a real life problem. The tax code is often very specific about the useful life. Generally accepted accounting principles have a bit more leeway in determining what the useful life will be. But the idea being that however long we think we're going to use that asset for we should take it over that useful life so we can allocate the cost over that time period. If we divide that out then we have the 59 375 each year. That means that we're going to depreciate expense 59 375 lowering net income by that even amount each year. We're going to do that for the useful life of four years into this case meaning that we will have accumulated at the end of that four years accumulated depreciation of this 237 500 and the book value then would be the cost less this 237 500 leaving us with the salvage at the end of the useful life of the 20 000