TOPIC: Sum of Years' formula

Hi
I purchased the 105 Formula Questions.
I'm looking to clarify the answer to question No.94.
The answer given is €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

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

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

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.