Sum-of-the-year-digits (SYD)

This method is used less frequently than it once was. It applies a declining portion of the total cost of the asset less the salvage value to depreciation expense.

In the example above, there are five years to depreciate. The sum of the years is 15 (1 + 2 + 3 + 4 + 5 = 15). A factor is used for each year starting with the highest number. In the example, depreciation over the five years would look like this:

 

Year	Factor	Cost minus salvage	Depreciation Expense
1	5/15	$19,500	$6,500
2	4/15	19,500	5,200
3	3/15	19,500	3,900
4	2/15	19,500	2,600
5	1/15	19,500	1,300

 

Notice that in both the straight-line and SYD methods, the total depreciation at the end of the five years equals the cost minus the salvage value. In the straight-line method, the total or accumulated depreciation is $3,900 X 5 = $19,500. In the SYD method, accumulated depreciation is $6,500 + 5,200 + 3,900 + 2,600 + 1,300 = $19,500. In the declining balance method, you ultimately get to the same place if you actually sell the vehicle for its estimated salvage value. Your accumulated depreciation is $5,400 + 4,320 + 3,456 + 2,765 + 2,212 = $18,153, which is less total depreciation than under the other two methods. However, if you sell the truck for $7,500, you will recognize a loss on sale of $1,347, which, when added to your accumulated depreciation, will give you $19,500.

All depreciation methods end up getting the book value of the asset down to its salvage value. They all just take different roads to get there.