Читать книгу Corporate Finance For Dummies - Michael Taillard - Страница 90

The sum of years method for calculating depreciation applies a greater value loss at the start of the equipment’s life and slowly decreases the value loss each year. This method allows companies to take into account the marginally decreasing loss of value that most purchases go through.

To see what I mean, imagine that you’re buying a new car. Unless you get into an accident or otherwise damage the vehicle, the car itself will never lose as much value during its lifetime as it does in the first year. By the time the car is 10 years old, it will have lost most of its value, but it won’t be losing its value as quickly each year.

To calculate the depreciation each year by using the sum of years method, you divide the remaining number of years of life the equipment has left, n, by the sum of the integers 1 through n, and then multiply the answer by the cost of the equipment minus salvage cost. Here’s what that looks like in equation form:

So if you purchase a piece of equipment for $100,000 and it’s supposed to last for five years with a salvage value of $10,000, then the first year’s depreciation would look like this:

The first year represents of the total depreciation that the equipment will go through. The next year is (in this case, $24,000), the next year is , and so on.