Question

Haaland Company depreciates an asset with an original cost of $8,000 over 5 years using the sum-of-the-years digits’ method of depreciation. The asset was purchased on July 1, 2020 and the depreciation expense for 2020 is $1,250. What is the estimated salvage value of the asset?

Answer 1

Working Notes:
	CALCULATION OF THE NET VALUE ON WHICH DEPRECIATION IS CHARGED
	SUM OF DIGITS = 1+2+3+4+5 = 15
	In First year of Depreciation Digit is 5 used and for 6 month of use only
	Net value of the assets as per half year depreciation = $ 1,250 X 15 / 5=	$                        3,750
	So Full value of assets = $ 3,750 X 2 =	$                        7,500
Solution:
	Calculation of Salvage value of the Assets
	Purchase value of the assets =	$                        8,000
	Less: Depreciabble value of the assets	$                        7,500
	Net Difference is salvage value	500.00
	Answer = Salvage value of the assets = $ 500