Question

The sum-of-the-years digits method does not deduct the salvage value in computing the depreciation base.

A. True
B. False

Answer 1

The statement is False. The sum-of-the-years digits (SYD) method does deduct the salvage value in computing the depreciation base.

Step-by-step explanation:

The statement is False. The sum-of-the-years digits (SYD) method is a depreciation method that allocates a higher amount of depreciation expense in the earlier years of an asset's life and lower amounts in the later years. It does take into account the salvage value of the asset when calculating the depreciation base.

To calculate the depreciation expense using the SYD method, you need to determine the useful life of the asset, the total depreciable cost, and the salvage value. The formula is:

1. Calculate the sum of the digits: [(n)(n+1)]/2, where n is the useful life of the asset.
2. For each year, calculate the depreciation expense by multiplying the depreciable cost [(cost - salvage value)] by the remaining years' fraction [(useful life - years passed)/(sum of the digits)].
3. Repeat step 2 for each year until the useful life ends.

For example, if an asset has a useful life of 5 years, a cost of $10,000, and a salvage value of $2,000, you would calculate the sum of the digits to be (5)(5+1)/2 = 15. The depreciation expense for year 1 would be [(10,000-2,000) * (5-0)/15] = $533.33.