Sum-of-the-Years'-Digits Calculation

The sum-of-the-years'-digits depreciation method bases its depreciation computations on a decreasing fraction of the depreciable basis (acquired value less the salvage value and any bonus depreciation). The numerator of the fraction changes each year. For any one year, the numerator represents the remaining estimated life of the asset. The denominator, which represents (but does not equal) the entire estimated life, does not change.

Here are two ways to calculate the denominator. One way is to add the digits for each year in the estimated life; that is, add 1 for the first year, 2 for the second year, and so on through the final year. For example, the sum of the years' digits for an asset with an estimated life of 5 years is:

1 + 2 + 3 + 4 + 5 = 15

Another, faster way to calculate the sum, when the life is expressed in whole years only, is to multiply the estimated life by itself plus 1 and divide the result by 2. The formula looks like this:

n(n+ 1)

where n = the number of years in the asset's useful life.

Assuming a 5-year useful life, the calculation is:

5(5 + 1)

= 15