3. Sum of Years Digit Method

Features :
(1) It is a revised form of Reducing Balance Method.
(2) Here also the working life of an asset has to be pre-estimated and Total Depreciation is
considered as Cost of the Asset (—) Residual or Scrap Value.
(3) The amount of annual depreciation goes on decreasing with the use. For calculating
depreciation, the denominator becomes the sum of the digits repre senting the life of the
asset. Thus if an asset has a life of 5 years, the denomina tor should be I + 2 + 3 + 4 + 5 or
15.





Depreciation = (Remaining Life of the Asset x Depreciable Amount)/Sum of the Year’s Digit
Where,
Depreciable Amount = Cost of the Asset – Estimated Scrap Value
Sum of the Years’ Digit = n(n+1)/2
n = estimated life of the asset

Example:
If an asset costs Rs. 50,000, it has a residual value of Rs. 5,000 and working life of 5 years
the depreciation will be—
1st year 5/15 of (50,000 —5,000) or Rs. 15,000;
2nd year 4/15 of (50,000 —5,000) or Rs. 12,000;
3rd year 3/15 of (50,000 —5,000) or Rs. 9,000;
4th year 2/15 of (50,000 —5,000) or Rs. 6,000;
5th year 1/15 of (50,000 —5,000) or Rs. 3,000.