Question

please help

11. A piece of equipment is purchased for $110,000 and has an estimated salvage value of $10,000 at the end of the recovery period. Prepare a depreciation schedule for the piece of equipment using the sum-of-the-years method with a recovery period of seven years.

Answer 1

Solution:

As per the Information given in the question we have

Cost of the Equipment = $ 110,000

Recovery period i.e., useful Life of the equipment = 7 years

Salvage value of the equipment = $ 10,000

Thus the depreciable value of the equipment is

= Cost of equipment – Salvage value

= $ 110,000 – $ 10,000 = $ 100,000

Depreciable value of the equipment = $ 100,000

The formula for calculating the Yearly depreciation as per the Sum of years digits method of depreciation is

= Depreciable value of equipment * ( Remaining years of useful life of equipment / Sum of years of Digits )

The sum of Years of digits = 1 + 2 + 3 + 4 + 5 + 6 + 7 = 28

The Depreciation for Year 1 = $ 100,000 * ( 7 / 28 ) = $ 25,000

The Depreciation for Year 2 = $ 100,000 * ( 6 / 28 ) = $ 21,428.57

Similarly, Depreciation can be calculated using the above method for the rest of the years

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

01.01.2020 - Microsoft Excel XDS5 FILET HOME INSERT A B PAGE LAYOUT FORMULAS DATA REVIEW VIEW Year Depreciation schedule using Sum of Years Digits Depreciation model Depreciable cost of the Equipment Remaining years of sum of Years digits that Depreciation Accumulated Closing Book Value useful life of the constitute the Life of the Amount Depreciation at the after Charging Equipment Equipment end of each year Depreciation (2) (5) = [(2) * (3)]/(4) (6) (7) = (2) - (6) 100,000.00 25,000.00 $ 25,000.00 $ 75,000.00 2 $ 100,000.00 28 $ 21,428.57 $ 46,428.57 $ 53,571.43 100,000.00 28 $ 17,857.14 $ 64,285.71 $ 35,714.29 4 $ 100,000.00 28 $ 14,285.71$ 78,571.43 $ 21,428.57 5 $ 100,000.00 28 $ 10,714.29 $ 89,285.71 $ 10,714.29 6 $ 100,000.00 28 $ 7,142.86 $ 96,428.57 $ 3,571.43 7 $ 100,000.00 28 $ 3,571.43 $ 100,000.00 $ (0.00) Sum of years digits = SUM(D5:011) 3 $ Note: The remaining useful life of Equipment at Year 1 = 7 Years The remaining useful life of Equipment at Year 2 = 7 Years - 1 Year = 6 Years Similarly, the remaining useful life of Equipment at Year 3 = 7 Years - 2 Years = 5 Years