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1 older comment kept for context.
JAMES
To calculate the depreciation to be charged for the third year using the sum of the year digits method, follow these steps:
Calculate the sum of the years' digits:
For an asset with a useful life of 4 years, the sum of the years' digits is:
4
+
3
+
2
+
1
10
4+3+2+1=10
Determine the fraction of depreciation for the third year:
The third year's fraction is the third highest number of the useful life (2) divided by the sum of the years' digits (10).
Depreciation fraction for the third year
2
10
0.2
Depreciation fraction for the third year=
10
2
=0.2
Calculate the total depreciable amount:
The depreciable amount is the cost of the asset minus the residual value.
Depreciable amount
₦
12
,
000
−
₦
2
,
000
₦
10
,
000
Depreciable amount=₦12,000−₦2,000=₦10,000
Calculate the depreciation expense for the third year:
Depreciation expense for the third year
₦
10
,
000
×
0.2
₦
2
,
000
Depreciation expense for the third year=₦10,000×0.2=₦2,000
So, the depreciation to be charged for the third year is ₦2,000.