Accel erated Depreci at i on Met h ods
Another way of accounting for depreciation is to use one of the accelerated m ethods.
These include the Sum of the Year’s Digits and the Declining Balance [ either 1 50 or
200%] m ethods. These accelerated m ethods are more conservative and, in m ost
cases, accurate. They assum e that an asset loses a maj ority of its value in the first
several years of use.
Su m of t h e Years Dig it s
To calculate depreciation charges using the sum of the year’s digits m ethod, take the
expected life of an asset (in years) count back to one and add the figures together.
Exam ple:
1 0 years useful life = 1 0 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 Sum of the years =
55
I n the first year, the asset would be depreciated 1 0/55 in value [ the fraction 1 0/55 is
equal to 1 8.1 8%] the first year, 9/55 [1 6.36% ] the second year, 8/55 [1 4.54%] the
third year, and so on. Going back to our exam ple from the straight-line discussion: a
$5,000 com puter with a $200 salvage value and 3 years useful life would be
calculated as follows:
3 years useful life = 3 + 2 + 1 Sum of the years = 6
Taking $5,000 - $200 we have a depreciable base of $4,800. I n the first year, the
com puter would be depreciated by 3/6ths [ 50%] , the second year, by 2/6 [ 33.33%]
and the third and final year by the remaining 1 /6 [ 1 6.67%] . This would have
translated into depreciation charges of $2,400 the first year, $1 ,599.84 the second
year, and $800.1 6 the third year. The straight-line exam ple would have sim ply
charged $1 ,600 each year, distributed evenly over the three years useful life.