I Like Accounting

Sum-of-Years-Digits Depreciation

Lesson
Show/Hide Lesson

If you liked double-declining balance depreciation, you'll probably like its bigger brother even more.

In most cases it will depreciate even faster.then double-declining balance depreciation.

Here's how it works:

  1. Calculate the depreciable base: Take the initial item value and subtract its residual value
  2. Count the number of years of total depreciation. Add those numbers together. For instance, 5 years of depreciation would be 5+4+3+2+1=15.
  3. Starting with the first year, assign each the highest available number available from those listed above. For instance, the first year would be 5/15, the next would be 4/15 and so on.
  4. For each year, multiply the remaining depreciable base by the fraction above.
Question Howard corp., the famed chair exporter, is examining some equiptment that has been depreciated using the sum-of-years. It had an original purchase price of $21,600 and an expected lifespan of 3 years. It has no residual value.
What is the starting value of the item in year number 2 when using the sum-of-years depreciation method?
Answer