Sum of Years Digit Example
Use the Sum of Years Digit method when the asset is more productive when it is new and therefore depreciation should be accelerated.
Depreciation is greater in the earlier years of the asset's useful life and less in the later years. However, the total amount of depreciation over the asset's useful life does not change.
This method uses the following calculation for depreciation:
Depreciation basis x (Remaining useful life / Sum of years digits)
For example, a piece of equipment costs $160,000, the useful life is 5 years, and the expected valued at the end is $10,000. Because the equipment will be sold at the end of five years for $10,000, the total depreciable cost is $150,000.
| Year | Depreciation Amount per Year |
|---|---|
| 1 | 5/15 of $150,000 = $50,000 |
| 2 | 4/15 of $150,000 = $40,000 |
| 3 | 3/15 of $150,000 = $30,000 |
| 4 | 2/15 of $150,000 = $20,000 |
| 5 | 1/15 of $150,000 = $10,000 |
| Sum | $150,000 |
DPS uses the following information to calculate Sum of Years Digits depreciation:
| Description | Location in DPS |
|---|---|
| Depreciation Basis | GL Cost tab of the Equipment hub |
| In Service Period | Methods tab of |
| In Service Date | GL Book tab of the Equipment hub |
| Yearly Depreciation Amount | Multiply the % per year times the Depreciation Basis. The % per year comes from the Methods tab of |
| Current Period Cumulative Depreciation | Comes from the assigned asset class (default) or the edited value on the Depreciation tab of the Equipment hub. |
This is how DPS performs Sum of Year Digits depreciation:
| Step | Description |
|---|---|
| 1 | Take the depreciation basis from the GL Cost tab of the Equipment hub. |
| 2 | Calculate the total number of in service periods. |
| 3 | Calculate the yearly depreciation amount. |
| 4 | Calculate the current period cumulative depreciation. |
| 6 | Copy the current accumulated depreciation amount to the previous accumulated depreciation amount. |
| 7 | Add this amount to the Depreciation tab of the Equipment hub. |