Sum of the years’ digits method

Another accelerated depreciation method is the sum of the years’ digits method. Additionally, higher depreciation happens in the early years and a lower amount occurs in the latter years, comparable to the twofold falling depreciation approach.

In the sum of the year’s digits depreciation technique, the depreciation is calculated by dividing the asset’s remaining life by the sum of the years’ digits, which is then multiplied by the asset’s purchase price.

Start by adding up all the asset’s estimated life’s digits. An asset with a five-year life, for instance, would have a base of 1 + 2 + 3 + 4 + 5 = 15, or the sum of the digits 1 through 5.

5/15 of the depreciable base would be written off in the first year of depreciation. Only 4/15 of the depreciable base would be depreciated in the second year. This continues until the final 1/15 of the base is depreciated in year five.

Applicable percentage (%) = Number of years of estimated life remaining at the beginning of the year / SYD

Where: SYD = n(n+1) / 2 SYD stands for sum of the years’ digit n = number of years

Say ABC Company purchases a machine for $100,000 with an estimated salvage value of $10,000 and a useful life of 5 years. The straight-line depreciation rate is 20%.