Sum-Of-The-Years' Digits

The sum-of-the-years’ digits is a method for calculating the depreciation from an asset that uses a sliding scale to calculate the asset’s value rather than a linear scale. This sliding scale assumes that an asset will lose more value each year early in its lifetime and lose less value each year during its lifetime.

The value of new cars, typically, depreciate in this fashion rather than losing a set amount of value each year. When calculating the depreciation using the sum-of-the-years’ digits, we take the time frame we wish to estimate the depreciated value, say four years, and then we sum the digits of the years (1 + 2 + 3 + 4 = 10). This will be the denominator of our depreciation fraction. We take the years in reverse order (4, 3, 2, and 1) and make those the numerators of the fractions (410= 40%, 310= 30%, 210= 20%, and 110= 10%). We expect the value of the asset to depreciate 40% its first year, 30% its second year, 20% its third year, and 10% its fourth year.