Depreciation Methods

Akron Incorporated purchased an asset on September $1$ 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 for Year $1$ using the sum$-$of$-$the$-$years'$-$digits method.

Calculate the depreciation for Year $2$ using the sum$-$of$-$the$-$years'$-$digits method.

T Check My Wark

The sum$-$of$-$the$-$years'$-$digits method recognizes a declining depreciation expense each period by applying a decreasing fraction each year to the depreciable base of the asset. The

the years of the asset's service life. Therefore, for an asset with a $5-$year life, the sum is $5+4+3+2+1=15.$ The numerator of the fraction is the number of years remaining in

year. Note that in this method, the depreciation base remains constant, while the fraction decreases each year.

When acquisition and disposal of assets occur throughout the year, you should record depreciation only for the portion of the year that the asset was used in the operation of the bs

allocate the annual amount of depreciation expense into adjacent fiscal years based on the number of months.

Example

If the sum$-$of$-$the$-$years'$-$digits depreciation method is used you should compute depreciation expense as follows:

Fiscal Year

$**$The second year is NOT $96,000!$