Sum-of-the-year's-digits. Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2020. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2021, Seceda Corp. uses the machinery for 2,650 hours, and the
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.
Sum-of-the-year's-digits.
Jon Seceda Furnace Corp. purchased machinery for $315,000 on May 1, 2020. It is estimated that it will have a useful life of 10 years, salvage value of $15,000, production of 240,000 units, and working hours of 25,000. During 2021, Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units
My understanding of the equation is
(Cost-Salvage Value) x
My calculation: ($315,000-$15,000) x 10/55 = 54,545.45
Bartely's answer (which is correct):
($315,000-$15,000) x 10/55 x 4/12 = 18,181.81
($315,000-$15,000) x 9/55 x 8/12 = 32,727.27
Sum-of-the-Years'-digits = 50,909.08 (add 18,181.81 and 32,727.27)
My question is where does the fractions (4/12 and 8/12) come from?
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