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TOPIC: Sum of Years' formula

Sum of Years' formula 7 months 2 weeks ago #7296

  • Damien
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Hi
I purchased the 105 Formula Questions.
I'm looking to clarify the answer to question No.94.
The answer given is B) €17,272.

When I calculate using the 'Sum of Years' formulas I get an answer of €17,100. Below is the calculation for the first three years.

Year 1 – 10/55 = 18% = €17,100
Year 2 – 9/55 = 16% = €15,200
Year 3 – 8/55 = 14% = €13,300

Can you show me we're I'm going wrong please.

Regards
Damien

Sum of Years' formula 7 months 2 weeks ago #7313

  • Tracey South
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Hi Damien: Can you provide the full question please? We can't provide any input unless we know the purchase price and exactly what the question is asking you.

Thanks....Tracey
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Sum of Years' formula 6 months 3 weeks ago #7407

  • Damien
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Sorry for the delay Tracey — see full question below.

Question 94: Your company owns an asset with an original value of $100,000. This asset will be depreciated using the Sum-of-Years' Digits Method over the period of 10 years. At the end of its life, the asset will have a scrap value of $5,000. How much is the depreciation in year 1?
A.) $18,181
B.) $17,272
C.) $9,500
D.) $19,000


Regards
Damien

Sum of Years' formula 6 months 3 weeks ago #7408

  • Rahul Kakkar
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Hi Damien,

Sum of the Years' Digits = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 = 10(10 + 1) ÷ 2 = 55

Depreciable Base = $100,000 − $5,000 = $95,000

Depreciation in year one = 10/55 x 95,000 = $17,272

The difference is happening because you were first converting 10/55 into a percentage and then multiplying it by 95,000. By converting it into a percentage, the value was being rounded off which is why you're getting a difference of 17,272 - 17,100 = $172.

Hope this helps.
Rahul Kakkar, PMP, MBA
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