Broadway Ltd. purchased equipment on January 1, 2016, for $800,000, estimating a five-year useful life and no residual value. In 2016 and 2017, Broadway depreciated the asset using the straight-line method. In 2018, Broadway changed to sum-of-years'-digits depreciation for this equipment. What depreciation would Broadway record for the year 2018 on this equipment?

Question

Quizplus · Accepted Answer

The depreciation for 2016 and 2017 was: $800,000 ÷ 5 = $160,000 per year.
This leaves a book value of $480,000 ($800,000 - 320,000) and three years remain in the asset's life. Under SYD, the remaining depreciable base would be multiplied by 3 ÷ (1 + 2 + 3) for 2018, or 3/6 × $480,000 = $240,000 in depreciation.