University:
Stanford University
Course:
ACCT 152 | Introduction to Financial Accounting
Academic year:

2022
Views:

86

Pages:

1
Author:

kundgetanufv

Concept Sum Of Years Of Digits Method : It is variation of the "Reducing Balance Method", in this case, the annual depreciation calculated by multiplying the original cost of the asset less ítsestímated scrap value by fraction represented by : The number of years (including the present year) of remaining life of the asset /Total of all digits of the life of the asset (in years) Suppose the estimated life of an asset is 10 years; the total of all the digits from. I to 10 is 55 i.e. 10+9 +8+7+6+5+4 +3 + 2+1, or by the formula: n(n +1)/2=1OX11/2=55 The depreciation to be written off in the first year will be 10/55 of the coat of asset less estimated scrap value; and the depreciation for the second year will be 9/55 of the cost of asset less estimated scrap value and so on, Its advantages are the same as those of the Reducing Balance Method. Example: M/S Raj s co. purchased a machine for RS. 200,000. Estimated useful life and scrap value were 12 years and RS. 13,000 respectively. The machine was put to use on 1.12004. Show Depreciation in their books for 2009 by using sum of years digits method Solution: Total of sum of digit of depreciation for 2004-2008 = (RS.200000-RS 13000) X12+11+10+9+8/12(12+1)/2 =RS 187000X50/78=RS 119871.795$ Depreciation for 2009: (RS 200000-RS 13000) X6/50=RS 22440