Question

(Depreciation Computations, SYD) Five Satins Company purchased a piece of equipment at the beginning of 2014. The equipment cost \(430,000. It has an estimated service life of 8 years and an expected salvage value of \)70,000. The sum of-the-years’-digits method of depreciation is being used. Someone has already correctly prepared a depreciation schedule for this asset. This schedule shows that \(60,000 will be depreciated for a particular calendar year.

Instructions

Show calculations to determine for what particular year the depreciation amount for this asset will be \)60,000.

Short answer

Answer

In 2016 the depreciation amount for this asset will be $60,000.

Step-by-step solution

Meaning of Sum of Year’s Digit Method

In this method of accelerated depreciation, the total of the year's digits is multiplied by the number of years. During depreciation, a fraction of the whole year’s worth is subtracted from the object's value.

Showing calculations to determine for what particular year the depreciation amount for this asset will be $60,000.

Computation of depreciable cost

$\begin{array}{rcl}\text{Depreciable}\text{cost}& =& \text{Cost}\text{of}\text{the}\text{asset}-\text{Salvage}\text{value}\\ & =& \$430,000-\$70,000\\ & =& \$360,000\end{array}$

Calculating the sum of year digits

$\begin{array}{rcl}\text{Sum}\text{of}\text{year's}\text{digit}& =& \frac{\text{n}\left(\text{n}+1\right)}{2}\\ & =& \frac{8\left(8+1\right)}{2}\\ & =& \frac{8\times 9}{2}\\ & =& 36\end{array}$

Computation of depreciation by using the sum of year digits method

Year	Depreciation base	Remaining life of the asset	Depreciation fraction	Depreciation expense	Accumulated depreciation
2014	$360,000	8	$\frac{8}{36}$	$80,000	$80,000
2015	$360,000	7	$\frac{7}{36}$	$70,000	$150,000
2016	$360,000	6	$\frac{6}{36}$	$60,000	$210,000
2017	$360,000	5	$\frac{5}{36}$	$50,000	$260,000
2018	$360,000	4	$\frac{4}{36}$	$40,000	$300,000
2019	$360,000	3	$\frac{3}{36}$	$30,000	$330,000
2020	$360,000	2	$\frac{2}{36}$	$20,000	$350,000
2021	$360,000	1	$\frac{1}{36}$	$10,000	$360,000

Thus, the amount of $60,000 depreciation will be equal I the year 2016.