## What are 'Sum-Of-The-Years' Digits '

Sum-of-the-years'-digits is an accelerated method for calculating an asset's depreciation. This method takes the asset's expected life and adds together the digits for each year, so if the asset was expected to last for five years, the sum of the years' digits would be obtained by adding: 5 + 4 + 3 + 2 + 1 to get a total of 15. Each digit is then divided by this sum to determine the percentage by which the asset should be depreciated each year, starting with the highest number in year 1.

Next Up

## BREAKING DOWN 'Sum-Of-The-Years' Digits '

It makes sense to use an accelerated depreciation method such as the SYR method when an asset will lose most of its value toward the beginning of its useful life — as is the case with automobiles, for example. In the five-year example above, the SYD method would yield the following depreciation schedule:

Year 1: 5/15 = 33% Year 2: 4/15 = 27% Year 3: 3/15 = 20% Year 4: 2/15 = 13% Year 5: 1/15 = 7%

The percentages for all these years should add up to 100%.

## Accelerated Depreciation

Depreciation is a method of asset cost allocation that apportions an asset's cost to expenses for each period expected to benefit from using the asset. Depending on the chosen cost apportionment or depreciation rate, depreciation charges can be variable, straight-lined or accelerated over the useful life of an asset. Accelerated depreciation uses decreasing charge methods, including the sum-of-the-years' digits, providing higher depreciation costs in earlier years and lower depreciation charges in later periods. Under the sum-of-the-years'-digits method, the depreciation rate percentage for each year is calculated as the number of years in remaining asset life for the same year divided by the sum of remaining asset life every year through the asset's life. As the depreciation rate decreases over time, so does the depreciation charge.

## Economic Usefulness of Assets

The accelerated or decreasing cost allocation for asset depreciation, such as the sum-of-the-years'-digits method, better matches the cost of using an asset to the benefit the asset use provides each year over the economic life of the asset. The benefit from using an asset declines as the asset gets older, meaning an asset provides greater service value in earlier years. Therefore, charging higher depreciation cost early on and decreasing depreciation charge in later years reflects the reality of an asset's changing economic usefulness over time.

## Repair and Maintenance Costs

As an asset gets older, repair and maintenance costs are to rise. A decreasing depreciation charge over time helps provide a constant overall cost between depreciation charges and repair and maintenance costs, the latter of which are lower in the earlier years and can offset higher depreciation charges early on. Without accelerated depreciation and decreasing depreciation charges, earnings as reported may be distorted — too high early on and too low later on — when depreciation cost allocation does not accommodate actual changes in repair and maintenance costs over an asset's useful life.

RELATED TERMS
1. ### Accelerated Depreciation

Any method of depreciation used for accounting or income tax ...
2. ### Double Declining Balance Depreciation ...

The double declining balance depreciation method is an accelerated ...
3. ### Retirement Method of Depreciation ...

Retirement method of depreciation describes the accounting practice ...
4. ### Fully Depreciated Asset

A fully depreciated asset is a property, plant or piece of equipment ...
5. ### Alternative Depreciation System ...

Alternative Depreciation System is a depreciation schedule with ...
6. ### Useful Life

An estimate of how long one can expect to use an income-producing ...
Related Articles
1. Taxes

### Recoverable Depreciation: How it Works

Recoverable depreciation is a concept used in many insurance policies and claims.

### Top Economic Factors That Depreciate The \$US

A variety of factors contribute to currency depreciation, including monetary policy, inflation, demand for currency, economic growth and export prices.

### These Countries Are Cheap Thanks to Declining Currency

Discover the effect Brexit has had across global financial and currency markets. Learn why three major currencies have depreciated in the aftermath of the vote.
4. ### 6 Asset Allocation Strategies That Work

Your portfolio’s asset mix is a key factor in its profitability. Find out how to achieve this delicate balance.
5. Investing

### Asset Turnover Ratio

Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ...
6. Investing

### What Is Tactical Asset Allocation?

Here's how tactical asset allocation, an extension of strategic asset allocation, works.
7. Managing Wealth

### Asset Manager Ethics: Valuation Is A Tricky Business

Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.

### An Introduction to Asset Allocation

A portfolio is only as strong as its asset allocation. To create the right one, investors need to determine their risk tolerance, time horizon and goals.
9. Personal Finance

### Alternate Methods Of Online Payment

Paying by credit is one of the most common methods of payment for online shopping in the U.S. However, there are many other options worth testing out.
RELATED FAQS
1. ### What is the tax impact of calculating depreciation?

Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
2. ### What is the relationship between accumulated depreciation and depreciation expense?

Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >>
3. ### What's the difference between amortization and depreciation?

Learn the difference between amortization, depreciation, and depletion and how companies use these accounting methods to ... Read Answer >>
4. ### When should I use depreciation expense instead of accumulated depreciation?

Distinguish differences between depreciation expense, which is reported on the income statement, and accumulated depreciation ... Read Answer >>
5. ### What are some examples of the main types of capital expenditures (CAPEX)?

Learn about different expenses with acquiring assets that are considered capital expenditures and should be depreciated over ... Read Answer >>
6. ### How do I calculate fixed asset depreciation using Excel?

Learn what depreciation is and how to use Excel to calculate depreciation for fixed assets with the straight line and sum ... Read Answer >>
Hot Definitions
1. ### Quick Ratio

The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
2. ### Leverage

Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
3. ### Financial Risk

Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
4. ### Enterprise Value (EV)

Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
5. ### Relative Strength Index - RSI

Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
6. ### Dividend

A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.