{"id":85332,"date":"2021-11-17T19:38:51","date_gmt":"2021-11-17T14:08:51","guid":{"rendered":"https:\/\/www.oliveboard.in\/blog\/?p=85332"},"modified":"2021-11-18T11:11:06","modified_gmt":"2021-11-18T05:41:06","slug":"sum-of-years-digits","status":"publish","type":"post","link":"https:\/\/www.oliveboard.in\/blog\/sum-of-years-digits\/","title":{"rendered":"Sum of Years Digits – How to calculate ?| For JAIIB"},"content":{"rendered":"\n

Sum of years digits (SYD) is an accelerated method for calculating an asset’s depreciation. A method known as accelerated depreciation allows more deductions in the earlier years of the asset & gradually decreases in the later years. The method assumes that the asset’s productivity decreases with the passage of time.<\/p>\n\n\n\n

Sum of Years Digit is best suited for assets that may become obsolete very soon due to technological advancements, such as computers, automobiles, etc.<\/p>\n\n\n\n

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Attempt A Free Mock Test Now<\/strong><\/a><\/div>\n<\/div>\n\n\n\n

How does the method of Sum of years digit works?<\/h2>\n\n\n\n

Assuming an asset is expected to last for five years, adding together the digits for each year results in 15; so, if the asset was expected to last five years, adding 5 + 4 + 3 + 2 + 1 would generate 15. Each digit is then divided by this sum to determine the depreciation rate each year, starting with the highest number in year 1.<\/p>\n\n\n\n

Steps to calculate the Sum of years Digits:<\/h3>\n\n\n\n
  1. Calculate the depreciable amount by subtracting the salvage value from the acquisition cost of the asset.<\/li>
  2. Calculate the Sum of Useful Years of the Asset.<\/li>
  3. Each year, depreciation is multiplied by a depreciation factor. The depreciation factor equals the useful life of the asset divided by the sum of its useful years.<\/li>
  4. The Sum of years depreciation = Number of useful years\/sum of useful years * (Depreciable amount)<\/li>
  5. If the useful life of an asset is 3. Then, the sum of useful years is = 3 + 2 + 1 = 6 Thus, the factors for each year will be 3\/6, 2\/6, 1\/6 respectively for the 1st, 2nd and 3rd.<\/li><\/ol>\n\n\n\n

    Example:<\/strong><\/p>\n\n\n\n

    Purchase price of asset = Rs 1,60,000<\/p>\n\n\n\n

    The useful life of the asset = 5 years<\/p>\n\n\n\n

    Salvage Value = Rs 10,000<\/p>\n\n\n\n

    This means that the total amount of Rs 1,50,000 will be spread over its useful life of 5 years.<\/p>\n\n\n\n

    Here, the sum of the years digits will be = 1 + 2 + 3 + 4 + 5= 15<\/p>\n\n\n\n

    YEAR<\/td>DEPRECIATIONBASE<\/td>REMAININGLIFE<\/td>DEPRECIATIONFRACTION<\/td>AMOUNT OF DEPRECIATION<\/td>BOOK VALUE<\/td><\/tr>
    1<\/td>1,50,000<\/td>5<\/td>5\/15<\/td>50,000<\/td>1,00,000<\/td><\/tr>
    2<\/td>1,50,000<\/td>4<\/td>4\/15<\/td>40,000<\/td>60,000<\/td><\/tr>
    3<\/td>1,50,000<\/td>3<\/td>3\/15<\/td>30,000<\/td>30,000<\/td><\/tr>
    4<\/td>1,50,000<\/td>2<\/td>2\/15<\/td>20,000<\/td>10,000<\/td><\/tr>
    5<\/td>1,50,000<\/td>1<\/td>1\/15<\/td>10,000<\/td>\u2013<\/td><\/tr>
     <\/td> <\/td> <\/td> <\/td>Rs 1,50,000<\/td> <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    As the remaining life of the machine decreases, the depreciation expense also decreases.<\/p>\n\n\n\n

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    Attempt a free mock test now<\/a><\/div>\n<\/div>\n\n\n\n

    Advantages of Sum of Years Digit Method:<\/h3>\n\n\n\n