Crash Course in Accounting and Financial Statement Analysis, Second Edition

Accelerated Depreciation Method: Sum-of-the-Years’ Digits

Sum-of-the-Years’ Digits (SYD) method allows depreciation to be recorded based on a reversed scale of the total of digits for the years of useful life.

Where:

• YD = n(n + 1)/2 reflects the summation over the depreciable life of n years

• n = useful life in years

• z = current year

Recall the previous example (Exercise 10) of straight-line depreciation, where a tire maker spends $100,000 in 2004 to acquire a piece of manufacturing equipment that is expected to be productive for the next five years, with an expected salvage value of $20,000. Let’s instead apply the SYD method:

SYD = n (n + 1)/2 = (5)(5 + 1)/2 = 15

Depreciation in year 1 = 5/15 × $80,000= $26,667

Depreciation in year 2 = 4/15 × $80,000 = $21,333

11. Calculating Depreciation Expense Using the SYD Method

Exercise Q1: Using the SYD methodology, complete the depreciation schedule in this example for years 3–5.

11. Calculating Depreciation Expense Using the SYD Method

Solution 1: Year Depreciation Rate (SYD) Depreciable Cost (Original Cost – Salvage Value) Depreciation (SYD – Depreciable Cost) Book Value 0 - $80,000 $0 $100,000 1 5/15 80,000 26,667 73,333 2 4/15 80,000 21,333 52,000 3