Sum-of-Years-Digits Depreciation

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.

Answer:

Explanation:

1. The first thing we need to do is figure out the sum of all of the years.
   1 + 2 + 3 = 6
2. The math is a little complicated, so let's build a table. The fractional depreciation rate is calculated by taking the largest year number we haven't used yet and dividing it by the sum of all of the years (6).

   sum-of-years method

   Year	Depreciation Base	Fractional Depreciation Rate	Depreciation	Accumulated Depreciation	Ending Value

3. Now let's fill in another year.

   sum-of-years method

   Year	Depreciation Base	Fractional Depreciation Rate	Depreciation	Accumulated Depreciation	Ending Value
   1	$81,400.00	3 / 6	$40,700.00	$40,700.00	$40,700.00

4. And here we can just read off the depreciation for year 1 from the table ($40,700.00).

   sum-of-years method

   Year	Depreciation Base	Fractional Depreciation Rate	Depreciation	Accumulated Depreciation	Ending Value
   1	$81,400.00	3 / 6	$40,700.00	$40,700.00	$40,700.00