Question

Gerard Inc. purchased a fixed asset for $75,000. It has an estimated useful life of 8 years with a salvage value of $3,000. Using the Sum of Years Digits method, determine the depreciation expense and book value for each of the 8 years. (Refer to the examples in the class notes and video). You may first want to work the problem out on scrap paper using a chart. *

Answer 1

Year Depreciation Calculation Accumulated Depreciation Book Value

1 8/36×72,000 = 16,000 16,000 59,000

2 7/36×72,000 = 14,000 32,000 36,000

3 6/36×72,000 = 12,000 44,000 31,000

4 5/36×72,000 = 10,000 54,000 21,000

5 4/36×72,000 = 8,000 62,000 13,000

6 3/36×72,000 = 6,000 68,000 7,000

7 2/36×72,000 = 4,000 72,000 3,000

8 1/36×72,000 = 2,000 74,000 1,000

Step-by-step explanation:

Sum of Years digits method provides for higher depreciation to be charged early in life of an asset with lower depreciation in later years.

Depreciation Expense and Book Value Calculation

Sum of Digits = 8 +7+6+5+4+3+2+1 =36

Year Depreciation Calculation Accumulated Depreciation Book Value

1 8/36×72,000 = 16,000 16,000 59,000

2 7/36×72,000 = 14,000 32,000 36,000

3 6/36×72,000 = 12,000 44,000 31,000

4 5/36×72,000 = 10,000 54,000 21,000

5 4/36×72,000 = 8,000 62,000 13,000

6 3/36×72,000 = 6,000 68,000 7,000

7 2/36×72,000 = 4,000 72,000 3,000

8 1/36×72,000 = 2,000 74,000 1,000

Book Value = Cost - Accumulated Depreciation