Question

Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum-of-the-years'-digits method?

Answer 1

Answer:

Accumulated depreciation at the end of year 5 is $12 million

Explanation:

The relevant number of years with which to depreciate the asset is from 1 to 10, however these numbers are taking in descending in order to have more depreciation in early years and less in later years.

Years              relevant weighting number

1                               10

2                               9

3                               8

4                                7

5                                 6

6                                 5

7                                 4

8                                 3

9                                  2

10                                 1

Total weighting           55

The accumulated depreciation at the end of year 5 would depreciation from  year 1 to year 5 calculated as shown below:

(10+9+8+7+6)/55*$16.5 million=$12 million

In other words, at the end of year $12 million would have been charged as expense to income statement.