Exam 14: Depreciation

Correct Answer:

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To determine the depreciation fraction in any year of an asset's life using the sum-of-the-years'-digits method of depreciation, you first need to calculate the sum of the years' digits for the asset's useful life. This is done by adding together the digits representing each year of the asset's useful life. For example, if the asset has a useful life of 5 years, the sum of the years' digits would be 15 (1+2+3+4+5).

Once you have the sum of the years' digits, you can then determine the depreciation fraction for a specific year by taking the remaining useful life of the asset and dividing it by the sum of the years' digits. For example, if you are calculating the depreciation fraction for year 3 of the asset's life, and the remaining useful life is 3 years, you would divide 3 by 15 to get a depreciation fraction of 0.2.

This depreciation fraction is then used to calculate the depreciation expense for that year by multiplying it by the depreciable cost of the asset. This method of depreciation results in higher depreciation expenses in the earlier years of an asset's life, reflecting the higher usage and wear and tear during those years.