Depreciation- Sum of years method
Sum of the Years' Digits Method of Depreciation
Sum of the years' digits method of depreciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old. The formula to calculate depreciation under SYD method is:
SYD Depreciation =
Depreciable Base × Remaining Useful Life Sum of the Years' Digits
In the above formula, depreciable base is the difference between cost and salvage value of the asset and sum of the years' digits is the sum of the series:
1, 2, 3, ... , n ; where n is the useful life of the asset in years.
Sum of the years' digits can be calculated more conveniently using the following formula:
Sum of the Years' Digits = n(n+1) 2
Sum of the years' digits method can also be applied on monthly basis, in which case the above formula to calculate the sum of the years' digits becomes much useful.
Example
Use sum of the years' digits method of depreciation to prepare a depreciation schedule of the following asset:
Cost $45,000
Salvage Value $5,000
Useful Life in Years 4
Asset is Depreciated Yearly
Solution
Sum of the Years' Digits = 1 + 2 + 3 + 4 = 4(4 + 1) ÷ 2 = 10
Depreciable Base = $45,000 − $5,000 = $40,000
Year Depreciable
Base Depreciation
Factor Depreciation Expense Accumulated
Depreciation
1 $40,000 4/10 4/10 × 40,000 = 16,000 $16,000
2 $40,000 3/10 3/10 × 40,000 = 12,000 $28,000
3 $40,000 2/10 2/10 × 40,000 = 8,000 $36,000
4 $40,000 1/10 1/10 × 40,000 = 4,000 $40,000
Sum of the years' digits method of depreciation is one of the accelerated depreciation techniques which are based on the assumption that assets are generally more productive when they are new and their productivity decreases as they become old. The formula to calculate depreciation under SYD method is:
SYD Depreciation =
Depreciable Base × Remaining Useful Life Sum of the Years' Digits
In the above formula, depreciable base is the difference between cost and salvage value of the asset and sum of the years' digits is the sum of the series:
1, 2, 3, ... , n ; where n is the useful life of the asset in years.
Sum of the years' digits can be calculated more conveniently using the following formula:
Sum of the Years' Digits = n(n+1) 2
Sum of the years' digits method can also be applied on monthly basis, in which case the above formula to calculate the sum of the years' digits becomes much useful.
Example
Use sum of the years' digits method of depreciation to prepare a depreciation schedule of the following asset:
Cost $45,000
Salvage Value $5,000
Useful Life in Years 4
Asset is Depreciated Yearly
Solution
Sum of the Years' Digits = 1 + 2 + 3 + 4 = 4(4 + 1) ÷ 2 = 10
Depreciable Base = $45,000 − $5,000 = $40,000
Year Depreciable
Base Depreciation
Factor Depreciation Expense Accumulated
Depreciation
1 $40,000 4/10 4/10 × 40,000 = 16,000 $16,000
2 $40,000 3/10 3/10 × 40,000 = 12,000 $28,000
3 $40,000 2/10 2/10 × 40,000 = 8,000 $36,000
4 $40,000 1/10 1/10 × 40,000 = 4,000 $40,000