Sum of the Years Digits Method of Depreciation

Definition: Sum of the Years Digits Method of Depreciation is an accelerated method that will result in greater depreciation in the earlier years of an asset's life and less in the later years.

Formula:
This method takes the asset's life and adds together the digits for each year. Thus if the asset was expected to last for 4 years, the sum of the years' digits would be obtained by adding: 4 + 3 + 2 + 1 to get a total of 10.

Example:
CK Ltd. purchased an asset costing $10,000. The estimated life of the asset is 4 years. The estimated residual value is $2000. Calculate the depreciation charge for each year using the Sum of the Years Digits Method.

Answer:
Depreciation (Year 1) = 4/10 x 8000 = $3,200
Depreciation (Year 2) = 3/10 x 8000 = $2,400
Depreciation (Year 3) = 2/10 x 8000 = $1,600
Depreciation (Year 4) = 1/10 x 8000 = $800
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