Sum of the Years Digits is an accelerated depreciation method, meaning more depreciation is expensed in the early years of the class life of an asset. To calculate depreciation using this method, take the estimated life of the asset and add the years together.
For example, a five year life becomes: 1 + 2 + 3 + 4 + 5= 15. This is the denominator for the formula. The numerator is the number of years remaining to be depreciated.
Let’s look at an example asset. It is a 5 year property so our denominator is 1 + 2 + 3 + 4 + 5= 15. In the first year of depreciation, five years remain.
Our formula is:
(Cost – Salvage) * (year / sum of the years)
($40,000 – $2,000) * (5/15) = 12,667 depreciation for the first year.
| Asset 1 | 20xx Ford F350 |
| Asset Name | Vehicles |
| Useful Life | 5 years |
| Cost (Basis) | $40,000 |
| Salvage Value | $2,000 |
| Units: Miles | 100,000 |
In this chart, we will continue the calculation for the full life of the asset:
| Year | Cost – Salvage | Factor | Depreciation Expense | Accumulated Depreciation | Net Book Value |
| 1 | 38,000 | 5/15 | 12,667 | 12,667 | 27,333 |
| 2 | 38,000 | 4/15 | 10133 | 22,800 | 15,200 |
| 3 | 38,000 | 3/15 | 7,600 | 30,400 | 9,600 |
| 4 | 38,000 | 2/15 | 5,067 | 35,467 | 4533 |
| 5 | 38,000 | 1/15 | STOP! See below! |
As with similar depreciation methods, in the last year we ignore the formula and depreciate only to the salvage value of the asset.
In this case, here’s what that looks like for the final year:
| Year | Cost – Salvage | Factor | Depreciation Expense | Accumulated Depreciation | Net Book Value |
| 1 | 38,000 | 5/15 | 12,667 | 12,667 | 27,333 |
| 2 | 38,000 | 4/15 | 10133 | 22,800 | 15,200 |
| 3 | 38,000 | 3/15 | 7,600 | 30,400 | 9,600 |
| 4 | 38,000 | 2/15 | 5,067 | 35,467 | 4533 |
| 5 | 38,000 | 1/15 | 2,533 | 38,000 | 2,000 |
For additional examples of Sum of the Years Digits, watch this video:
For other depreciation methods, check out these articles:
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