Sum of Years Digits depreciation is an accelerated depreciation method, which assumes that assets incur greater depreciation during the early years of the asset's life.
To calculate the Sum of Years Digits depreciation, the system must first calculate the Sum of Years Digits and the remaining years of life.
The system calculates the Sum of Years Digits using the following equation:
Est. Useful Life in Years x [(Est. Useful Life in Years + 1) / 2] = Sum of Years Digits
Using this equation, the Sum of Years Digits for an asset with an expected useful life of five years is calculated as follows:
5 years x [(5 years + 1) / 2] = 15 years
Quickly determine the Sum of Years Digits value by adding together the numbers representing
the years of an asset's useful life. For example, if an asset is expected to have
a useful life of five years, the digits representing that useful life are 1, 2, 3,
4, and 5. To determine the Sum of Years Digits value, add the digits: 1 + 2 + 3 +
4 + 5 = 15.
The system determines an asset's remaining years of life based on its expected useful life. For example, for an asset whose expected useful life is five years, the remaining years of life is 5 for the first year, 4 for the second year, 3 for the third year, etc.
The system then calculates the Sum of Years Digits depreciation based on the following equation:
(Original Value - Residual Value) x Remaining Years of Life / Sum of Years Digits = Annual Depreciation Expense