Sum of the Years’ Digits 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.

Formula

The formula to calculate depreciation under SYD method is:

Sum of Years' Digits Depreciation
= Depreciable Base ×Remaining Life
SYD

In the above formula,
depreciable base is the difference between cost and salvage value of the asset, and
SYD 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 conveniently using the following formula:

SYD =n(n+1)
2

SYD method can also be applied on monthly basis, in which case the above formula to calculate the sum of a series 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 Years4
Asset is DepreciatedYearly

Solution

Sum of the Years' Digits
= 1 + 2 + 3 + 4
= 4 × (4 + 1) ÷ 2
= 10

Depreciable Base
= $45,000 − $5,000
= $40,000

YearDepreciable
Base
Depreciation
Factor
Depreciation ExpenseAccumulated
Depreciation
1$40,0004/104/10 × 40,000 =16,000$16,000
2$40,0003/103/10 × 40,000 =12,000$28,000
3$40,0002/102/10 × 40,000 =8,000$36,000
4$40,0001/101/10 × 40,000 =4,000$40,000

by Irfanullah Jan, ACCA and last modified on

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