Using the sum of the years digits method
Step 1:
We sum up all the digits of the estimated life of equipment.
i.e. 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 + 13 + 14 + 15 + 16 + 17 + 18 + 19 + 20 = 210
Step 2:
We count the years spent from the back. i.e. year 2 is equivalent to 19 in the years digits.
Given that the cost of the equipment is $79,600.00 with a salvage value of $4,000.00. This means that the depreciable amount of the equipment is given by $79,600.00 - $4,000.00 = $75,600.00
The depreciation charge on the equipment for year 1 is given by
[tex] \frac{20}{210} \times\$75,600=\$7,200[/tex]
while the depreciation charge on the equipment for year 2 is given by
[tex] \frac{19}{210} \times\$75,600=\$6,840[/tex]
The book value of an equipment is given by the cost of the equipment minus the accumulated depreciation.
Therefore, the book value of the equipment at the end of year 2 is given by
$79,600 - $7,200 - $6,840 = $65,560
