Although I’m an academic, the first post-secondary diploma I received, believe it or not, was in accounting and office management. While I haven’t used it much professionally, what I learned from that program keeps me interested in related topics, especially theoretical ones.<\/p>\n
Depreciation – the loss of value an asset experiences over time – is a great example of a concept that can be fascinating. One reason: there are several ways to calculate it. Just today I’ve discovered the sum-of-years’-digits method of calculating depreciation. What an elegant method it is:<\/p>\n
Example<\/p>\n Calculate the yearly depreciation of a 60,000 asset that will last four years, then have a salvage value of 8850. First, we subtract salvage value from the new value, to arrive at the lost value:<\/p>\n 60000-8850 = 51150<\/p>\n Next, we add up the years’ digits:<\/p>\n 1+2+3+4 = 10<\/p>\n The greatest digit (in this case, 4) is then divided by their sum (in this case, 10); that quotient is multiplied by the value that will be lost (51150) to get the first year’s depreciation amount. The process is repeated with the second greatest digit, and so on, so that the depreciation, year by year, is as follows:<\/p>\n
Source:<\/p>\n accounting-simplified.com<\/a><\/p>\n
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\nSolution<\/p>\n\n
\n Year<\/td>\n Depreciation amount<\/td>\n \n 1<\/td>\n (4\/10)*51150 = 20,460<\/td>\n<\/tr>\n \n 2<\/td>\n (3\/10)*51150 = 15345<\/td>\n<\/tr>\n \n 3<\/td>\n (2\/10)*51150 = 10230<\/td>\n<\/tr>\n \n 4<\/td>\n (1\/10)*51150 = 5115<\/td>\n<\/tr>\n<\/table>\n
\nI love the straightforward calculation procedure of the sum-of-years’-digits method, and hope you will too:)<\/p>\n