sum of the digits
- *allocating costs to time periods based on the formula n (n + 1) / 2, where n represents the number of years to which the cost is to be allocated. In *amortization methodologies, the sum of the digits approach results in an *accelerated method that amortizes the cost of a *long-term asset more heavily in the early years of its *useful economic life. For example, for an asset with a useful economic life of 5 years, the sum of the digits is 15, which is calculated as 5 (5 + 1) / 2. In the first year, the cost of the asset is amortized by 5/15, in the second year by 4/15, and so on, until the final year’s amortization of 1/15.
Auditor's dictionary. 2014.
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sum of the digits — ˌsum of the ˈdigits also ˌsum of the ˌyears ˈdigits noun [singular] ACCOUNTING one of the ways of calculating the depreciation (= loss of value over time) of an asset. For example, if an asset has a life of four years, 4+3+2+1= 10, so in the… … Financial and business terms
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