Sum-of-the-Years'-Digits Depreciation

What is this formula?

The Sum-of-the-Years'-Digits (SYD) method calculates depreciation by allocating a larger portion of an asset's depreciable value to the early years of its useful life and progressively smaller portions to later years.

The annual depreciation fraction is determined by dividing the remaining life of the asset by the sum of all year digits over the asset's useful life.

When to use it

Use this method when an asset is expected to lose value more rapidly during its early years but a smoother acceleration is desired compared to the Double Declining Balance method.

Example

A machine costs $50,000.

Data:

Cost = $50,000

Salvage Value = $5,000

Useful Life = 5 years

Remaining Life in Year 1 = 5 years

Sum of Year Digits:

5+4+3+2+1 = 15

Formula:

D=R(C-S)/15

Substitution:

D=5(50,000-5,000)/15

D=15,000

Result:

First-year depreciation expense = $15,000

Applications

Accelerated depreciation accounting

Equipment valuation

Financial reporting

Asset lifecycle analysis

Corporate accounting

Note

The SYD method is an accounting allocation model rather than a physical measure of asset deterioration. Different accounting standards may permit or restrict its use. Alternative accelerated depreciation methods such as Declining Balance and Double Declining Balance are also widely accepted.