If a company uses the sum-of-the-years'-digits method, how is the depreciation calculated?
Practice Questions
1 question
Q1
If a company uses the sum-of-the-years'-digits method, how is the depreciation calculated?
Based on the asset's age
Based on the asset's cost and salvage value
Based on the total number of years of useful life
Based on the asset's market value
The sum-of-the-years'-digits method calculates depreciation based on the total number of years of useful life.
Questions & Step-by-step Solutions
1 item
Q
Q: If a company uses the sum-of-the-years'-digits method, how is the depreciation calculated?
Solution: The sum-of-the-years'-digits method calculates depreciation based on the total number of years of useful life.
Steps: 5
Step 1: Determine the cost of the asset. This is how much the company paid for it.
Step 2: Determine the useful life of the asset. This is how many years the company expects to use it.
Step 3: Calculate the sum of the years. For example, if the useful life is 5 years, add 1 + 2 + 3 + 4 + 5 = 15.
Step 4: Determine the depreciation for each year. For the first year, use the last year of the sum (5) divided by the total sum (15). For the second year, use the second last year (4) divided by the total sum (15), and so on.
Step 5: Multiply the fraction from Step 4 by the cost of the asset to find the depreciation for each year.
