Sum of year's digits method is an accelerated method of depreciation which is also based on the assumption that the loss in the value of fixed asset will be greater during the earlier years and goes on decreasing gradually with the decrease in the life of such asset. The sum of year's digit (SYD) is found by estimating an asset's useful life in years, then assessing consecutive numbers to each year, and totaling these numbers. For n years, SYD = 1+2+3+4+...........+n.
For example, if the life of an asset is 5 years, the SYD would be 1+21+3+4+5=15. Determining the SYD factor by simple addition can be somewhat laborious for long-lived assets. For these assets the formula(n+1)/2 where, n= the number of periods in the asset's useful life can be applied to derive the SYD.
Sum of year digit = 5(5+1)/2 = 30/2= 15
The yearly depreciation is then calculated by multiplying the total depreciable amount for the life of the asset by a fraction whose numerator is the remaining useful life and whose denominator is the SYD. Thus in our example the calculation would:
First year depreciation = 5/15 X Depreciation cost
Second year depreciation = 4/15 X Depreciation cost
Third year depreciation = 3/15 X Depreciation cost
Fourth year depreciation = 2/15 X Depreciation cost
Fifth year depreciation = 1/15 X Depreciation cost
The formula for depreciation for sun of year's digits method is:
Depreciation = Depreciation cost X (Remaining useful life/SYD)
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