Question

Company purchased equipment costing $239,000 on
January 1, 2022. The equipment was assigned an estimated
useful life of six years and an estimated salvage value
of $8,000. The equipment was to be depreciated using the
sum-of-the-years-digits' depreciation method.

On January 1, 2025, Company revised the life of
the equipment from six to thirteen years.

Calculate the amount of depreciation expense recorded on
the equipment for 2025.

Answer 1

Under the sum of the years' digit method, depreciation is computed as per the below steps:

The first step is to determine the depreciable base:

Cost = $239000, Salvage value = $8000

Depreciable base = $239000 - $8000 = $231000

The sum of the years' digit for 6 years is:

1 + 2+ 3 + 4+ 5 + 6 = 21

Now, we will calculate the depreciation for first 3 years (i.e. till the revised useful life) for 2022, 2023 and 2024 as per below:

Depreciation for

For 2022 i.e. first year : $231000 * 6 / 21 = $66000

For 2023 i.e. second year : $231000 * 5 / 21 = $55000

For 2024 i.e. third year : $231000 * 4 / 21 = $44000

Total accumulated depreciation (depreciation charged till date) until revision of useful life = $66000 + $55000 + $44000 = $165000

Now, on January 1, 2025, equipment's life is revised to 13 years i.e. 10 more years.

Now, we will depreciate the remaining book value of the equipment to remaining useful life.

Remaining book value = Depreciable base - Accumulated depreciation

Remaining book value = $231000 - $165000 = $66000

The sum of the years' digit for 10 years is:

1 + 2+ 3 + 4+ 5 + 6 + 7 + 8 + 9 + 10 = 55

Now, depreciation for 2025 will be:

Depreciation = 66000 * 10 / 55 = $12000