Sum – of – the – Digits Depreciation

Sum – of – the – Digits Depreciation A kind of ACCELERATED DEPRECIATION in which there is a higher depreciation and greater tax savings in the earlier years of an asset’s useful life. It allows depreciation on an inverted scale of the total digits of an asset’s life. If that is 4 years, the digits 4,3,2,1 are added to make 10. (Similarly, if that is 5 years, the digits will be 5,4,3,2,1, making 15) Depreciation is then changed at 4/10, 3/10, 2/10, 1/10 of the total asset value, (for a 5 – years asset life, therefore, 5/15, 4/15, 3/15, 2/15, and 1/15). Profits, owing to lower taxes, can be shown to materialize much faster in this method than in straightline depreciation.

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