I Need Help! Sum of Digits Finance Leases
K_L_White
Registered Posts: 7
Hi,
Please can someone help me I am really confused I cannot get my head around sum of digits finance lease.
n(n+1)/2 I just cannot get it to work
Andy leases an item of plant worth £10,000 over 5 years and pays £2,200 per annum in rentals.
What will his interest expense be in year 2, using the sum of digits method?
Choose one:
• £587
• £333
• £267
• £133
Any help would be much appreciated
Thanks
Kate
Please can someone help me I am really confused I cannot get my head around sum of digits finance lease.
n(n+1)/2 I just cannot get it to work
Andy leases an item of plant worth £10,000 over 5 years and pays £2,200 per annum in rentals.
What will his interest expense be in year 2, using the sum of digits method?
Choose one:
• £587
• £333
• £267
• £133
Any help would be much appreciated
Thanks
Kate
0
Comments

n(n+1)/2 where n = termPeriod B/F Interest Repayment C/F 1 10,000.00 333.33 2,200.00 8,133.33 2 8,133.33 266.67 2,200.00 6,200.00
Sum of the digits term = (5 x (5 + 1)) / 2 = 15
(This is the same as doing 5 + 4 + 3 + 2 + 1)
Total due: 10,000
Total repayments: 2,200 x 5 = 11,000
Total interest: (11,000  10,000) = 1,000
Interest formula: Total interest x remaining term / Sum of the digits term
Year 1 interest: ((1,000 x 5) / 15) = 333.33
Year 2 interest: ((1,000 x 4) / 15) = 266.67MAAT AATQB0 
Thank you very much, yes I understand it a bit more now lol0