Sum-of-Years-Digits Depreciation
Lesson:
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:
- Calculate the depreciable base: Take the initial item value and subtract its residual value
- 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.
- 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.
- For each year, multiply the remaining depreciable base by the fraction above.
Harvey Co., the acclaimed microwave importer, is examining some equipment that has been depreciated using the sum-of-years method.
You've been briefed with the following facts:
- It has an expected lifespan of 5 years.
- Its residual value is $4,177.
- It was acquired for $45,500.
What is the total accumulated depreciation as of end of year number 5 when using the sum-of-years depreciation method?
Answer:
- The total accumulated depreciation as of end of year number 5 is $41,323.00
Explanation:
- The first thing we need to do is figure out the sum of all of the years.
1 + 2 + 3 + 4 + 5 = 15 - The math is a little complicated, so let's build a table. The fractional depreciation rate is calculated by taking the largest year number we haven't used yet and dividing it by the sum of all of the years (15).
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value - Now let's fill in another year.
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value 1 $41,323.00 5 / 15 $13,774.33 $13,774.33 $31,725.00 - Now let's fill in another year.
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value 1 $41,323.00 5 / 15 $13,774.33 $13,774.33 $31,725.00 2 $41,323.00 4 / 15 $11,019.47 $24,793.80 $20,706.00 - Now let's fill in another year.
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value 1 $41,323.00 5 / 15 $13,774.33 $13,774.33 $31,725.00 2 $41,323.00 4 / 15 $11,019.47 $24,793.80 $20,706.00 3 $41,323.00 3 / 15 $8,264.60 $33,058.40 $12,441.00 - Now let's fill in another year.
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value 1 $41,323.00 5 / 15 $13,774.33 $13,774.33 $31,725.00 2 $41,323.00 4 / 15 $11,019.47 $24,793.80 $20,706.00 3 $41,323.00 3 / 15 $8,264.60 $33,058.40 $12,441.00 4 $41,323.00 2 / 15 $5,509.73 $38,568.13 $6,931.00 - Now let's fill in another year.
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value 1 $41,323.00 5 / 15 $13,774.33 $13,774.33 $31,725.00 2 $41,323.00 4 / 15 $11,019.47 $24,793.80 $20,706.00 3 $41,323.00 3 / 15 $8,264.60 $33,058.40 $12,441.00 4 $41,323.00 2 / 15 $5,509.73 $38,568.13 $6,931.00 5 $41,323.00 1 / 15 $2,754.87 $41,323.00 $4,177.00 - And here we can just read off the accumulated depreciation for year 5 from the table ($41,323.00).
sum-of-years method Year Depreciation Base Fractional Depreciation Rate Depreciation Accumulated Depreciation Ending Value 1 $41,323.00 5 / 15 $13,774.33 $13,774.33 $31,725.00 2 $41,323.00 4 / 15 $11,019.47 $24,793.80 $20,706.00 3 $41,323.00 3 / 15 $8,264.60 $33,058.40 $12,441.00 4 $41,323.00 2 / 15 $5,509.73 $38,568.13 $6,931.00 5 $41,323.00 1 / 15 $2,754.87 $41,323.00 $4,177.00