CMA Study Group

Sum of the years digits is the hint on how to handle the calculation. For 5 years of depreciation the denominator for year one is calculated by adding 1+2+3+4+5 = 15 divided by total depreciation years of 5; 50,000 divided by 3

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Dwayne Cox
Director/Manager
Stone Mountain GA
United States
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Original Message:
Sent: 10-20-2019 04:34 AM
From: Muhammad Usman Cheema
Subject: Sum-of-Year Depreciation Method

Hi All,

I am finding it little difficulty in grabbing the concept of the Sum Of Year Deprecation Method. Is there any trick in understanding the concept of arriving at the required numerator value in the calculation?

I am appearing on 23.10.19 for exam  :(

There is not a whole lot of logic when it comes to the sum of the years digit depreciation method. It is simply an accelerated depreciation method that can be used to depreciate a capital asset.  The most depreciation is taken in the first year, and less in each year that follows. 

To get the numerator determine the length of time that the asset will be depreciated over. Then count backwards. That is the numerator each year.

For example, if the asset is depreciated over 4 years, then the numerator will be:

Year                        Numerator
1                                   4
2                                    3
3                                    2
4                                    1


So in the first year that asset is in service you use "4" as the numerator. Then "3", the next year and so forth.

The denominator is always the sum of the years, which in this case is 4+3+2+1=10. The denominator can be found more directly using the formula n*(n+1)/2, where n is the length of time the asset is in service. In the 4 year case, that is 4*(4+1)/2=20/2=10

So the depreciation factor in  the first year is 4//10=.40. So you take 40% of the deprecation in the first year. The last year would be 1/10=.10.

The SYD method does take into consideration salvage value so you multiply the deprecation factor by the amount capitalized less salve value.

Hope this helps.



Tim





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Timothy Howard
Director/Manager
Pembroke Pines FL
United States
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Original Message:
Sent: 10-20-2019 04:34 AM
From: Muhammad Usman Cheema
Subject: Sum-of-Year Depreciation Method

Hi All,

I am finding it little difficulty in grabbing the concept of the Sum Of Year Deprecation Method. Is there any trick in understanding the concept of arriving at the required numerator value in the calculation?

I am appearing on 23.10.19 for exam  :(

Hi,

Thank you so much for such a detailed answer. Indeed it was of great help. Cleared my concept thoroughly. 

Warm Regards,

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Muhammad Usman Cheema
Accountant
Alokozay Group Of Companies
Dubai
United Arab Emirates
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Original Message:
Sent: 10-21-2019 09:20 AM
From: Timothy Howard
Subject: Sum-of-Year Depreciation Method

There is not a whole lot of logic when it comes to the sum of the years digit depreciation method. It is simply an accelerated depreciation method that can be used to depreciate a capital asset.  The most depreciation is taken in the first year, and less in each year that follows.

To get the numerator determine the length of time that the asset will be depreciated over. Then count backwards. That is the numerator each year.

For example, if the asset is depreciated over 4 years, then the numerator will be:

Year                        Numerator
1                                   4
2                                    3
3                                    2
4                                    1


So in the first year that asset is in service you use "4" as the numerator. Then "3", the next year and so forth.

The denominator is always the sum of the years, which in this case is 4+3+2+1=10. The denominator can be found more directly using the formula n*(n+1)/2, where n is the length of time the asset is in service. In the 4 year case, that is 4*(4+1)/2=20/2=10

So the depreciation factor in  the first year is 4//10=.40. So you take 40% of the deprecation in the first year. The last year would be 1/10=.10.

The SYD method does take into consideration salvage value so you multiply the deprecation factor by the amount capitalized less salve value.

Hope this helps.



Tim





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Timothy Howard
Director/Manager
Pembroke Pines FL
United States

Original Message:
Sent: 10-20-2019 04:34 AM
From: Muhammad Usman Cheema
Subject: Sum-of-Year Depreciation Method

Hi All,

I am finding it little difficulty in grabbing the concept of the Sum Of Year Deprecation Method. Is there any trick in understanding the concept of arriving at the required numerator value in the calculation?

I am appearing on 23.10.19 for exam  :(