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Sum-of-the-Years-Digits Method

[suhm-uhv-thuh-yeerz-dij-its meth-uhd]

What is the definition of Sum-of-the-Years-Digits Method?
An accelerated depreciation method where the depreciable value of an asset is multiplied by a decreasing fraction each year of the asset's useful life, resulting in higher depreciation charges in the earlier years and decreasing amounts later.
Using Sum-of-the-Years-Digits Method in an Example

Consider a company that purchases machinery for $100,000 with a useful life of 5 years and a salvage value of $10,000. Using the Sum-of-the-Years-Digits method, the total of the years' digits is calculated as 1+2+3+4+5=15. In the first year, the depreciation expense would be (5/15) of the depreciable base ($90,000), amounting to $30,000. This amount decreases each subsequent year.

Using Sum-of-the-Years-Digits Method in a sentence

Our company's accountant recommended using the Sum-of-the-Years-Digits method to accelerate depreciation on our new equipment, maximizing tax benefits in the initial years.

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