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# 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

17Sum 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) = 266.67

7