An asset cost £15,000 on 1 January 20X9. The directors expect to use it economically for three full years and to sell it for £3,000. What is the depreciation charge for the first year if they decide to apply the sum of digits method?

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Quizplus · Accepted Answer

The sum of digits method (also known as the sum-of-the-years'-digits method) calculates depreciation by considering the remaining life of the asset each year as a fraction of the sum of the years of its useful life. For a 3-year life, the sum of digits is 1+2+3=6. In the first year, the fraction is 3/6 of the depreciable amount. The depreciable amount is the cost minus the salvage value: £15,000 - £3,000 = £12,000. So, the first year depreciation is 3/6 of £12,000, which is £6,000.

An Asset Cost £15,000 on 1 January 20X9