The Sum of the Years Digits Method of Depreciation

>> August 10, 2013


As per the sum of years digits method of depreciation, amount of depreciation decreases continually every years. In this method, depreciation will be more written off in the beginning years than ending years. We calculate the depreciation in this method by applying following formula.

Depreciation = Reverse Working life Digit X ( Cost of Fixed Asset - Scrap) / Sum of  Life Years Digits 

This method is also called SYD Method. One of important thing in this method is that it stress of more depreciation on the beginning years because we use fixed assets more in the beginning years because we have bought new. So, We calculate the first years depreciation by multiplying  the cost fixed asset with the ratio of end year's digit and sum of working life years digits. Like this, we calculate all years depreciation and Depreciation amount will decrease fastly.

Example

1. A machine's cost is $ 1,20,000 and its scrap value is $ 10,000. Its working life 10 years. Calculate the depreciation of 10 years by using SYD method. 

Total of Working life digits = 10+9+8+7+6+5+4+3+2+1 = 55

First year depreciation = 10 (1,20,000 - 10,000) / 55 = $ 20,000
Second year's Depreciation = 9 (1,20,000 - 10,000) / 55 = $18000
3rd year's Depreciation = 8 (1,20,000 - 10,000) / 55 = $ 16000
4th year's Depreciation = 7 (1,20,000 - 10,000) / 55 =  $ 14000
5th year's Depreciation = 6  (1,20,000 - 10,000) / 55 =  $12000
6th year's Depreciation = 5  (1,20,000 - 10,000) / 55 = $ 10000
7th year's Depreciation = 4  (1,20,000 - 10,000) / 55 =  $ 8000
8th year's Depreciation = 3 (1,20,000 - 10,000) / 55 = $ 6000
9th year's Depreciation = 2  (1,20,000 - 10,000) / 55 = $ 4000
10th year's Depreciation = 1 (1,20,000 - 10,000) / 55 = $ 2000

2.  A machine's cost is $ 1,20,000 and its scrap value is $ 20,000. Its working life 5 years. Calculate the depreciation of 5 years by using SYD method. 

In this example, we have just changed the value of scrap and working life from 10 years to 5 years. But still, you will see that depreciation in the beginning is more than ending years. It is also necessary that balancing book value in the end of working life will equal to the scrap value or residual value.






Related Resources : 

Fixed Installment Method
Diminishing Balance Method
Insurance Policy Method of Depreciation 
Revaluation Method of Depreciation 
Machine Hour Rate Method of Depreciation 
Depletion Method of Depreciation 





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