what is straight line basis 
in finance a straight line basis is a method for calculating depreciation and amortization it is calculated by subtracting an asset s salvage value from its current value and dividing the result by the number of years until it reaches its salvage value if the results of calculating the basis were graphed it would appear as a straight line hence the name the straight line basis is the simplest way to determine the loss of value of an asset over time understanding straight line basisin accounting there are many different conventions that are designed to match sales and expenses to the period in which they are incurred one convention that companies embrace is referred to as depreciation and amortization accountants commonly use the straight line basis method to determine this amount the straight line method is one of the simplest ways to determine how much value an asset loses over time the challenge though is determining how much to expense in this method companies can expense an equal value of loss over each accounting period the assumption made by accountants is that the asset loses the same value over each period companies use depreciation for physical assets and amortization for intangible assets such as patents and software both conventions are used to expense an asset over its lifetime which allows the company to reduce a large expense that would decrease its income and profitability if it were to expense the entire cost of the asset in the same year it purchased it formula and calculating straight line basisuse the following formula to calculate depreciation using the straight line basis to calculate the straight line basis take the purchase price of an asset and then subtract the salvage value its estimated value when it is no longer expected to be needed then divide the resulting figure by the total number of years the asset is expected to be useful in accounting terms this is referred to as an asset s useful life an alternative to straight line depreciation is the declining balance method where the value of the asset is reduced by a percentage rather than a fixed amount 1advantages and disadvantages of straight line basisaccountants like the straight line method because it is easy to use unlike more complex methodologies such as double declining balance this method uses only three variables to calculate the amount of depreciation each accounting period the straight line basis is also an acceptable calculation method because it renders fewer errors over the life of the asset as such it expenses the same amount every accounting period the simplicity of straight line basis is one of its biggest drawbacks one of the most obvious pitfalls of using this method is that the useful life calculation is often based on guesswork for example there is always a risk that technological advancements could potentially render the asset obsolete earlier than expected moreover the straight line basis does not factor in the accelerated loss of an asset s value in the short term nor the likelihood that it will cost more to maintain as it gets older easy to use with three variablesrenders few errorsexpenses same amount for each accounting periodcalculation method may be too simplebased on guesswork