Method 02, Sum of the Year's Digits

The system applies changing fractions each year to the adjusted cost of the asset. When you use this depreciation method, you must indicate the current year-to-date (C) computation method, as follows:

(Cost - (salvage value)) * (remaining useful life) /(sum of the years) = (year's depreciation)

(Year's depreciation) / (number of normal periods in the year) = (period depreciation)

These rules apply to this depreciation calculation:

• The system converts life periods into years: for example, 36 life months / 12 months = 3 years.

• The denominator is the sum-of-the-years digits (SYD), calculated as follows:

  SYD = n * ((n + 1) / 2) where n = useful life in years

  For example, if life months equals 36 (3 years), the SYD is 6:

  3 * ((3 + 1) / 2) = 6

• The numerator is the remaining useful life at the beginning of the year.

• The system makes allocations throughout the useful life of the asset.

  For example, if you purchase an asset during the eighth month of the year, 5/12 of the first full year's depreciation is deductible in that year. In the second year, 7/12 of the first full year's depreciation, and 5/12 of the second year's depreciation are allowed. These allocations are followed for the entire life of the asset.

To accommodate the mid-year convention for an asset, you must change the depreciation start date to the midpoint of the year.