depreciation method, finance
TRANSCRIPT
ACCOUNTING FOR MANAGERS
Presented By: GROUP NO- 3Ashish SharmaParul Ladhwe
Sum of the Years’ Digits Method of Depreciation
Definition Sum of the years' digits method of
depreciation is one of the accelerated depreciation techniques that allocates higher depreciation expense in the earlier years of an asset's useful life.
SYD Depreciation =
Depreciable Base ×Remaining Useful Life
Sum of the Years' Digits
EXAMPLE
ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life of five years.
Year
Remainingestimated useful
life at beginning of year SYD
Applicablepercentage
Annualdepreciation
1 5 5/15 33.33% $30,0002 4 4/15 26.67 24,0003 3 3/15 20.00 18,0004 2 2/15 13.33 12,0005 1 1/15 6.67 6,000
Totals 15 100.00% $90,000
Negative aspects A problem regarding this is that it artificially
reduces the reported profit of a business over the near term.
The result is excessively low profits in the near term, followed by excessively high profits in later reporting periods.
Use of the method can have an indirect impact on cash flows.
CONCLUSION
It provides higher depreciation to be charged in the early years, and lower depreciation in the later periods.