Pharoah Company purchases equipment on January 1, Year 1, at a cost of $267,000. The asset is expected to have a service life of 5 years and a salvage value of $20,000. **Title: Calculating Depreciation Using the Sum-of-the-Years'-Digits Method****Instructions:**Learn how to calculate the depreciation for Years 1 and 2 using the sum-of-the-years'-digits method. This method is used to allocate the cost of an asset over its useful life, accelerating depreciation in the earlier years.**Depreciation Inputs:**- **Depreciation for Year 1:** $ [Input box]- **Depreciation for Year 2:** $ [Input box]Use the provided input boxes to calculate the depreciation for each year based on the sum-of-the-years'-digits method. This method helps in understanding the decreasing value of the asset over time, reflecting more expense in the earlier periods.

Name: Pharoah Company purchases equipment on January 1, Year 1, at a cost o
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Description: Pharoah Company purchases equipment on January 1, Year 1, at a cost of $267,000. The asset is expected to have a service life of 5 years and a salvage value of $20,000. **Title: Calculating Depreciation Using the Sum-of-the-Years'-Digits Method****I

Depreciation is an accounting method for dispersing a tangible or physical asset's cost over its useful or projected life. Depreciation is a term that describes how much of the value of an asset has been used up. Businesses can produce money while depreciating a percentage of the asset's cost each year it is in use by depreciating assets. The wrong way to account for depreciation can have a big influence on a company's profits. For tax and accounting purposes, long-term assets can also be depreciated. Depreciation is a charge applied to assets at the end of each period that lowers their total worth. The goal of implementing depreciation is to determine the true value of assets over a given period of time.Sum-of-Years' digit Method: Calculation: Deprecation under sum of digits method =Depreciable base x Remaining useful lifeTotal useful Life Depreciable base = Purchase Cost - Salvage Value = $267,000 - $20,000 = $247,000 Total useful life = n x(n + 1)2 =5 x (5+1)2 =302 =15 So, deprecation for 1 year = $247,000 x515=$82,333.33 So, deprecation for 2 year = $247,000 x415 = $65,866.66 Explanation In the sum of the year digit method first, we calculate depreciation under this method. in this method, the total useful life of an asset is calculated by adding the number of life with one and dividing the sum by 2 so the first-year depreciation will be counted as 5 years and for the next year, it will calculate for 4 years as one year already deducted from the assets life. Depreciation is taken on a regular basis so that the asset's cost can be transferred from the balance sheet to the income statement. 2 When a corporation purchases an asset, it records the transaction as a debit on the balance sheet to increase an asset account and a credit on the balance sheet to lower cash (or increase accounts payable). Neither journal entry has an impact on the income statement, which reports revenues and expenses.Therefore, Depreciation for Year 1 is $82,333.33 and for Year 2 is $65,866.66

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Compute the amount of depreciation for each of Years 1 and 2 using the sum-of-the-years'-digits method. Depreciation for Year 1 2$ Depreciation for Year 2 2$

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.

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Pharoah Company purchases equipment on January 1, Year 1, at a cost of $267,000. The asset is expected to have a service life of 5 years and a salvage value of $20,000.

**Title: Calculating Depreciation Using the Sum-of-the-Years'-Digits Method**

**Instructions:**

Learn how to calculate the depreciation for Years 1 and 2 using the sum-of-the-years'-digits method. This method is used to allocate the cost of an asset over its useful life, accelerating depreciation in the earlier years.

**Depreciation Inputs:**

- **Depreciation for Year 1:** $ [Input box]
- **Depreciation for Year 2:** $ [Input box]

Use the provided input boxes to calculate the depreciation for each year based on the sum-of-the-years'-digits method. This method helps in understanding the decreasing value of the asset over time, reflecting more expense in the earlier periods.

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