Sum-of-the-years' digits (SYD) is an accelerated method for calculating an
asset's depreciation. This method takes the asset's expected life and adds together the digits for each year; so if the asset was expected to last for five years, the sum of the years' digits would be obtained by adding: 5 + 4 + 3 + 2 + 1 to get a total of 15. Each digit is then divided by this sum to determine the percentage by which the asset should be depreciated each year, starting with the highest number in year 1.
KEY TAKEAWAYS
Sum-of-the-years' digits is an accelerated method for determining an
asset's expected depreciation over time. Depreciation is an accounting technique that involves pairing the cost of using a tangible asset with the advantage gained over its useful life. Accelerated depreciation differs from standard depreciation by assuming higher depreciation costs initially and lower costs in later years, reflecting the fact that the benefit of using an asset will be diminished as the asset ages. Standard depreciation, or straight-line depreciation, utilizes the same monetary cost every year of the asset's useful life. It is best to use an accelerated depreciation method, such as the SYD method, when an asset will lose most of its value toward the beginning of its useful life Understanding Sum-of-the-Years' Digits Depreciation is a method of asset cost allocation that apportions an asset's cost to expenses for each period expected to benefit from using the asset. Depending on the chosen cost apportionment or depreciation rate, depreciation charges can be variable, straight-lined, or accelerated over the useful life of an asset.
Accelerated depreciation uses decreasing charge methods, including the sum-of-
the-years' digits (SYD), providing higher depreciation costs in earlier years and lower depreciation charges in later periods. Under the SYD method, the depreciation rate percentage for each year is calculated as the number of years in remaining asset life for the same year divided by the sum of remaining asset life every year through the asset's life. As the depreciation rate decreases over time, so does the depreciation charge.