To calculate depreciation using the sum of the years' digits, divide the undepreciated useful life of the asset by the sum of the years' digits, and then multiply the result by the depreciable amount. If you know the useful life of the asset, the cost of the asset and its residual value after its useful life, the calculation takes about 10 minutes.
- Sum the years' digits in an asset's useful life
For an asset with a useful life of five years, add 1 + 2 + 3 + 4 + 5 for the result of 15.
- Calculate the depreciable amount
Start with the asset's cost, and then subtract any residual value at the end of the asset's useful life. For example, suppose an asset costs $160,000 and is worth $10,000 at the end of its useful life of five years. Subtract $10,000 from $160,000 to calculate the result of $150,000 for the depreciable amount.
- Determine the undepreciated useful life for each year
This amount is the number of years in the asset's useful life that have not been depreciated yet. For an asset with a useful life of five years, the undepreciated useful life is 5 for the first year of depreciation, 4 for the second year and so on.
- Calculate depreciation
Divide the undepreciated useful life (Step 3) by the sum of the years' digits (Step 1), and multiply the result by the depreciable amount (Step 2). For an asset that costs $160,000 and has a residual value of $10,000 and a useful life of five years, calculate depreciation for the first year as follows: (5 / 15) * $150,000 = $50,000.