Akron Incorporated purchased an asset at the beginning of Year 1 for $375,000. The estimated residual value is $15,000. Akron estimates that the asset has a service life of 5 years. Calculate the depreciation expense using the sum-of-the-years’-digits method for Years 1 and 2 of the asset’s life.
Calculate the depreciation expense of Company A for year 1 and year 2 under the sum of the years-digits method.
Sum-of- the-years’ digits method:
Sum-of-the years’ digits method determines the depreciation expense by multiplying the depreciable base and declining fraction.
Calculate the depreciation expense of Company A for year 1 and year 2 under the sum of the years-digits method as follows:
Year |
Depreciable Base  ($) (2) |  |
Depreciation rate per year | Â |
Depreciation ($) |
Year 1 | 360,000 | = | 120,000 | ||
Year 2 | 360,000 | = | 96,000 |
Table (1)
Working notes:
1
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