Sum of the years digits method of depreciation
SUM-OF-THE-YEARS-DIGITS METHOD OF DEPRECIATION
In
this method of depreciation also, it is assumed that the book value of the
asset decreases at a decreasing rate. If the asset has a life of eight years,
first the sum of the years is computed as
Sum of the years = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8
= 36 = n(n + 1)/2
The
rate of depreciation charge for the first year is assumed as the highest and
then it decreases. The rates of depreciation for the years 1–8, respectively
are as follows: 8/36, 7/36, 6/36, 5/36, 4/36, 3/36, 2/36, and 1/36.
For any year, the depreciation is calculated by multiplying the corresponding rate of depreciation with (P – F).
Dt = Rate*(P – F)
Bt = Bt–1
– Dt
