Sum of the Years Digits Depreciation

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Sum of the Years' Digits Depreciation

Overview of Sum of the Years' Digits Depreciation

The sum of the years' digits method (sometimes referred to as SYD) is used to accelerate the recognition of depreciation, so that most of it is recognized in the first few years of the useful life of a fixed asset.

The method is more appropriate than the more commonly-used straight-line depreciation if an asset depreciates more quickly or has greater production capacity in the earlier years than it does as it ages. The total amount of depreciation is identical no matter which depreciation method is used - the choice of depreciation method only alters the timing of depreciation recognition.

A problem with using this or any other accelerated depreciation method is that it artificially reduces the reported profit of a business over the near term.

Use the following formula to calculate it:

Applicable percentage =	Number of years of estimated life remaining at the beginning of the year
	SYD

SYD =	n(n + 1)	where n = estimated useful life
	2

Example of Sum of the Years' Digits Depreciation

ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life of five years. The sum of the years' digits depreciation calculation is:

SYD =	5(5 + 1)	= 15
	2

This formula yields the sum of each year of the estimated useful life:

1 + 2 + 3 + 4 + 5 = 15

Year	Remaining estimated useful life at beginning of year	SYD	Applicable percentage	Annual depreciation
1	5	5/15	33.33%	$30,000
2	4	4/15	26.67	24,000
3	3	3/15	20.00	18,000
4	2	2/15	13.33	12,000
5	1	1/15	6.67	6,000
Totals	15		100.00%	$90,000