Presentation at 9th November 2017

1. SUM-OF-THE-
YEARS’-DIGIT
DEPRECIATION METHOD

2. Course Code: QUS 3205
Course Title: Estimating 1
Section: 8S1
Lecturer: Mdm. Noorhidayah Sunarti
Presenters:
Zachary Wee Xin Yun I15007290
Chong Yaw Leong I15007342
Jacky Chin Xun Jie I15007252
Germaine Ng Qi I15007457
Tan Zhi Hang I15007658

3. Depreciation
• Define as:
• The decrease in market value of an asset
• Taken as an expenditure
• Due to economic and production life
that will turn into a scrap value at
the end of it’s lifespan

4. Sum-of-the-years’-digit Method
• Is a form of accelerated depreciation that is based on the assumption
that the productivity of the asset decreases with the passage of time.
• Under this method, a fraction is computed by dividing the remaining
useful life of the asset on a particular date by the sum of the year’s digits.
• This fraction is applied to the depreciable cost of the asset to compute
the depreciation expense for the period.
• Sum of years’ digits method attempts to charge a higher depreciation
expense in early years of the useful life of the asset because the asset is
most productive in early years of its life. Also the asset loses much of its
productive efficiency in early years.

5. Methods of Calculation (Formula)

6. Example of Scenario
• The ABC Sdn. Bhd. company purchased a concrete vibrator machine on
January 1, 2017. The relevant information is assumed below:
• Initial cost of the machine: RM 250,000.00
• Expected useful life of machine: 5 years
• Expected salvage value after lifespan: RM 25,000.00

7. Example of Calculation
Sum-of-the-years’-digit
(250,000-25,000)
(Accumulative)

8. Example of Calculation (Cont’d)
• Depreciable cost, DC (depreciable base): Cost of Machine – Salvage Value
RM250,000 – RM 25,000 = RM 225,000
• Depreciation expense at the end of the first year: DC × (Remaining useful
life/Sum-of-the-years’-digit)
RM 225,000 × (5/15) = RM 75,000
• Book value (asset value) at the end of the first year:
RM 250,000 – RM 75,000 = RM 175,000
• Notice that as the remaining life of the machine decreases, the depreciation
expense also decreases.

9. Sum-of-the-years’-digit VS Straight Line
Sum-of-the-years’-digit Straight Line
Used less frequent Commonly used as default method
More confusing, harder to compute & takes
more time by using formula
Simplest method to compute with same
depreciate value yearly
Depreciation expenses is higher in the early
stage
Keeps depreciation expense simple and constant
Use for assets that are most useful at the
beginning of their life
Assets are assumed to be same value of
depreciation annually
Better matches costs to revenues because it
takes more depreciation in the early years of an
assets’ useful life
Does not necessary match costs with revenues in
different types of long-term assets
More accurately as the difference in usage of
different assets from one period to the other
Does not reflect accurately the difference in
usage of an asset from one period to the other
Suitable for both long and short term assets Suitable for long-term assets
Appropriate for rapid depreciating value assets Might not be appropriate for some depreciable
assets due to rapidly developing technology,
such as computers and machineries

10. ~ Q&A ~