Depreciation ComputationsSolutionD Sum of year method The su

Depreciation Computations

Solution

D). Sum of year method

The sum of years digits method is accelerated depreciation. Depreciation is taken as a fractional part of a sum of all the years. For example, if an asset has a life of 5 years the sum of years is 1+2+3+4+5 = 15. Fractional parts are built with the year as the numerator and the sum of years as the denominator but, in reverse order. Year 1 is 5/15 * depreciable cost, Year 2 is 4/15 * depreciable cost, Year 3 is 3/15 * depreciable cost, etc. Since the sum of all fractions will equal 15/15, the total depreciation over the life of an asset will be 1 * depreciable cost = depreciable cost.

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E). Double Declining Balance

For example, if a business purchased a delivery truck for $30,000 that it expected to last for 10 years, after which it would be worth $3,000 (its salvage value), the company would deduct the remaining $27,000 as $2,700 per year for 10 years under straight-line depreciation. Using the double-declining balance method, however, it would deduct 20% (double 10%) of $27,000 in year 1 ($5,400), 20% of $21,600 ($27,000 minus $5,400) in year 2 ($4,320), and so on

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