ACCOUNTING FOR MANAGERS

Presented By: GROUP NO- 3Ashish SharmaParul Ladhwe

Sum of the Years’ Digits Method of Depreciation

Definition Sum of the years' digits method of

depreciation is one of the accelerated depreciation techniques that allocates higher depreciation expense in the earlier years of an asset's useful life.

SYD Depreciation =

Depreciable Base ×Remaining Useful Life

Sum of the Years' Digits

EXAMPLE

ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life of five years.

Year

Remainingestimated useful 

life at beginning of year SYD

Applicablepercentage

Annualdepreciation

1 5 5/15 33.33% $30,0002 4 4/15 26.67   24,0003 3 3/15 20.00       18,0004 2 2/15 13.33   12,0005   1 1/15    6.67      6,000

Totals 15   100.00% $90,000

Negative aspects A problem regarding this is that it artificially

reduces the reported profit of a business over the near term.

The result is excessively low profits in the near term, followed by excessively high profits in later reporting periods.

Use of the method can have an indirect impact on cash flows.

CONCLUSION

It provides higher depreciation to be charged in the early years, and lower depreciation in the later periods.