What is Sum-of-the-years'-digits depreciation?
In short
Sum-of-the-years'-digits is an accelerated depreciation method: each year's depreciation is the depreciable base (cost minus salvage value) multiplied by the remaining years of life divided by the sum of the years' digits.
Key takeaways
- The sum of the digits for a life of n years is n(n + 1) ÷ 2.
- Unlike double-declining balance, it subtracts salvage value from the base from the start.
- Depreciation falls by the same amount each year.
Example
Cost $33,000, salvage $3,000, 5-year life: the sum is 15, so year 1 is $30,000 × 5/15 = $10,000 and year 2 is $8,000.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under US GAAP, a long-lived asset held for use is tested for impairment. The carrying value is $500,000, undiscounted future net cash flows are $520,000, and fair value is $460,000. What impairment loss, if any, should be recognized?