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Chapter 3 Depreciation - Sum of The Years Digit MethodPart 4

The document explains the sum-of-the-years'-digits (SYD) method of depreciation. It states that SYD is an accelerated depreciation method where the depreciation rate decreases over time. To calculate depreciation under SYD, the asset's expected life is used to determine a weighting factor for each year by adding the digits of the expected life and dividing each digit by the sum. This results in a higher depreciation percentage in earlier years. Two examples are provided to illustrate the calculation of depreciation under SYD.

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Tor Gine
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102 views

Chapter 3 Depreciation - Sum of The Years Digit MethodPart 4

The document explains the sum-of-the-years'-digits (SYD) method of depreciation. It states that SYD is an accelerated depreciation method where the depreciation rate decreases over time. To calculate depreciation under SYD, the asset's expected life is used to determine a weighting factor for each year by adding the digits of the expected life and dividing each digit by the sum. This results in a higher depreciation percentage in earlier years. Two examples are provided to illustrate the calculation of depreciation under SYD.

Uploaded by

Tor Gine
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Part 5.

Sum-of-the-Years’-Digits (SYD) Method


• Sum-of-the-years' digits is an accelerated method for determining an asset's
expected depreciation over time. As the depreciation rate decreases over time,
so does the depreciation charge.
• Accelerated depreciation differs from standard depreciation by assuming
higher depreciation costs in earlier years and lower depreciation charges in
later period.
• 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.
L L
1. A structure costs P12,000 new. It is estimated to have a life of 5 years
with a salvage value at the end of life of P1,000. Determine the book value
at the end of each year of life.

Year Year in reverse Book Value(Beginning Depreciation during the year Book Value
order of Year) (End of Year)
1 5 12,000 (5/15)(11,000) = 3,666.666667 8,333.33
2 4 8,333.33 (4/15)(11,000) = 2,993.333333 5,399.996667
3 3 5,399.996667 (3/15)(11,000) = 2,200 3,199.996667
4 2 3,199.996667 (2/15)(11,000) = 1,466.666667 1,733.33
5 1 1,733.33 (1/15)(11,000) = 733.33 1,000
2. A new machine costs Php 8, 000, 000, has a useful life of 10 years. And can be
sold for Php 750, 000 at the end of its useful life. It is expected that Php 250, 000
will be spent to dismantle and remove the machine at the end of its useful life.
Construct a depreciation schedule using the sum-of-the-digits method for this
machine.

Given:
Co = 8,000,000
CL = 750,000 – 250,000 = 500,000
L = 10
L L

Co – CL = 8,000,000 – 500,000 = 7,500,000


Year Year in Book Depreciation during the year Book Value (End of
reverse Value(Beginning of Year)
order Year)
1 10 8,000,000 (10/55)(7,500,000) = 1,363,636.364 6,636,363.636
2 9 6,636,363.636 (9/55)(7,500,000) = 1,227,272.727 5,409,090.909
3 8 5,409,090.909 (8/55)(7,500,000) = 1,090,909.091 4,318,181.818
4 7 4,318,181.818 (7/55)(7,500,000) = 954,545.4545 3,363,636.364
5 6 3,363,636.364 (6/55)(7,500,000) = 818,181.8182 2,545,454.545
6 5 2,545,454.545 (5/55)(7,500,000) = 681,818.1818 1,863,636.364
7 4 1,863,636.364 (4/55)(7,500,000) = 545,454.5455 1,318,181.818
8 3 1,318,181.818 (3/55)(7,500,000) = 409,090.9091 909,090.9089
9 2 909,090.9089 (2/55)(7,500,000) = 272,727.2727 636,363.6362
10 1 636,363.6362 (1/55)(7,500,000) = 136,363.6364 499,999.9998

Σ of digits = 55

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