Under this method,
depreciation is similar to that of reducing balance method, excepting that the
digits are reversed. For example, if an assets is expected to last for 6 years,
the digits from 1 to 6 are added up as follows:
1+2+3+4+5+6 = 21
The total weight will be 21 and the annual depreciation will be charged
using 6 for year1, 5 for year2, 4 for year3, 3 for year4, 2 for year5 and 1 for
year6 respectively. We can say that this method is a ratio approach in reversed
order.
Example
On 1st January of year 20v3, an asset has the following
data:
Cost = ₦1,500,000
Useful life in years = 6
Scrap value = ₦177,000
Required
Calculate the annual depreciation chargeable on the asset for the
six-year period.
Suggested Solution
Digits in year are 1, 2, 3, 4, 5 and 6
Sum of the digits = 21
Depreciable value = ₦ (1,500,000-177,000) = ₦1,323,000
Thus, the yearly depreciation amount is ₦378,
000 for year1; ₦315,000 for year2; ₦252,000 for year3; ₦189,000
for year4; ₦126,000 for year5 and ₦63,000 for year6 respectively as
shown on the table above.
You will notice that the total depreciation amount
for the 6-year period is equal to the depreciable value of the assets as
computed above
Comments
Post a Comment