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Sum-of-Years-Digits Depreciation

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If you liked double-declining balance depreciation, you'll probably like its bigger brother even more.

In most cases it will depreciate even faster.then double-declining balance depreciation.

Here's how it works:

  1. Calculate the depreciable base: Take the initial item value and subtract its residual value
  2. Count the number of years of total depreciation. Add those numbers together. For instance, 5 years of depreciation would be 5+4+3+2+1=15.
  3. Starting with the first year, assign each the highest available number available from those listed above. For instance, the first year would be 5/15, the next would be 4/15 and so on.
  4. For each year, multiply the remaining depreciable base by the fraction above.
Question Pepper corp., the ever-maligned car manufacturer, is examining some equiptment that has been depreciated using the sum-of-years. It had an original purchase price of $70,400 and an expected lifespan of 4 years. Its residual value is $4,509.
What is the starting value of the item in year number 2 when using the sum-of-years depreciation method?
Answer