This is the method of calculating the acceleration of depreciation that means that how fast an asset is being depreciated. With the help of this method most of the depreciation of the asset is recognized in the first few years of the useful life of the asset. This method is usually used to calculate the depreciation of those fixed assets that have a high production capacity or where the depreciation rate of the assets in early years of life is more as compared to the later years of its age. The amount of depreciation comes to be same with each method applied to calculate depreciation however the time recognition for depreciation changes with each of the applied method.
The sum of the year’s depreciation method also has some impact on the cash flow of the business as it reduces the taxable income of the firm that results in a reduction in the income payments of the company. The formula used to calculate the depreciation can be explained as under:-
Applicable percentage of depreciation = number of years at which useful life estimated remaining at the beginning of the accounting/ SYD
SYD = n (N+1)/2
Where n = number of years of estimated useful life
Other Related Accounting Articles: