Sumoftheyearsdigits

The sum of the years digits is a depreciation method used in accounting to calculate depreciation expense for an asset. This method results in a higher depreciation expense in the earlier years of an asset's life and a lower expense in the later years. It is considered an accelerated depreciation method.

To calculate the annual depreciation expense using the sum of the years digits method, you first need to determine the sum of the years digits. This is done by adding together the individual digits of the asset's useful life. For example, if an asset has a useful life of 5 years, the sum of the years digits is 1 + 2 + 3 + 4 + 5 = 15.

Next, you create a fraction where the numerator is the remaining useful life of the asset at the beginning of the year, and the denominator is the sum of the years digits. This fraction is then multiplied by the depreciable base of the asset, which is the cost of the asset minus its salvage value.

For instance, in the first year of a 5-year asset with a depreciable base of $10,000, the depreciation expense would be (5/15) * $10,000 = $3,333.33. In the second year, the calculation would be (4/15) * $10,000 = $2,666.67, and so on, until the asset is fully depreciated.

The sum of the years digits method is one of several accelerated depreciation methods available, alongside the declining balance method. Its use is permitted under accounting principles, but specific tax regulations may favor other methods.