Sum of Years Digits is considered an accelerated and more conservative method of depreciation. It assumes an asset loses more value in the first several years of use. To calculate depreciation charges using the Sum of Years Digits method, take the expected life of an asset (in years) count back to one and add the figures together (e.g., 3 years useful life = 3 + 2 + 1 Sum of the years = 6).
Example: A new machine is purchased, costing $5000. You expect a salvage value of $200 selling parts when it is decommissioned. A 5-year useful life translates to 15 using the sum of years calculation. With $5000 - $200, we have a depreciation base of $4800. In the first year the machine would be depreciated by 5/15 (33.33%), the second year by 4/15 (26.66%), the third year by 3/15 (20%), the fourth year by 2/15 (13.33%), and final year by the remaining 1/15 (6.667%). This translates into depreciation charges of $1599.84 the first year, $1279.68 the second year, $960.00 the third year, $639.84 the fourth year, and $320.02 the fifth year.