Question

A car was purchased for $10,000 with a salvage value of $4000. It is

expected to have a useful life of 5 years. Using the sum-of-years method, find


the car's value in the first year after the purchase.


A. $8000


B. $10,000


C. $12,000


D. $9000

Answer 1

Answer: A.) $8000

Explanation:

Given the following :

Purchase value = $10,000

Salvage value = $4000

Useful life = 5years

Sum of digit in years = (1 + 2+ 3 + 4 + 5) = 15

Sum of years Depreciation formular is expressed as follows:

(Useful years / sum of years digit) × depreciable amount

Depreciable amount = purchase value - salvage value

Therefore,

Depreciable amount = $10000 - $4000 = $6000

First year Depreciation = (5 / 15) × $6000

= 0.3333333 × $6000 = $1999.99

= $2000

Therefore,

Value after first year equals :

Purchase value - first year Depreciation

$10,000 - $2,000 = $8,000