Question

A plant asset has a cost of $24,000 and a residual value of $6,000. The asset has a threeyear life.

If depreciation in the third year amounted to $3,000, which depreciation method was used?

a. Straight-line
b. Declining-balance
c. Sum-of-the-years'-digits
d. Cannot tell from information given

Answer 1

Answer:

It Sum-of-the -years'-digits method

Explanation:

Depreciation Expense=[Remaining useful life of the asset÷ Sum of the year's digit )×Depreciable cost

Sum-of-the -years'-digits= 3+2+1= 6

Depreciable cost = $24,000- $6,000 = $18,000

Year 1 -Depreciation = [3/6] * $18,000

                                  = $9,000

Year 2-Depreciation =[2/6] * $18,000

                                 = $6000

Year 3-Depreciation =[1/6] * $18,000

                                 = $3000

The sum of years’ digits method is a form of accelerated depreciation that is based on the assumption that the productivity of the asset decreases with the passage of time.