sum-of-the-digits method

A method of calculating the amount by which a fixed asset is depreciated in an accounting period. The estimated life is expressed in years, and the digits for each year of its life are totalled. The proportion of the asset's cost or valuation less residual value to be written off as depreciation in a particular year is determined by the number of years remaining before the asset's removal from commission, expressed as a proportion of the sum of the years; the greatest amount is therefore written off in the early years of the asset's life. For example, for an asset with an estimated life of 5 years, the sum of the digits is 5 + 4 + 3 + 2 + 1 = 15. Thus 5/15 is written off in the first year, 4/15 in year 2, 3/15 in year 3, and so on. In some circumstances the net residual value is ignored.

Accounting dictionary. 2014.

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