sum of the digits

A method of *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

  • sum-of-the-digits method — A method of calculating the amount by which a fixed asset is depreciated in an accounting period. The estimated life is expressed in years, and the digits for each year of its life are totalled. The proportion of the asset s cost or valuation… …   Accounting dictionary

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  • sum of the years' digits method — UK US noun [S] (ABBREVIATION SYD, also sum of the digits method) ACCOUNTING ► a reduction in the recorded value of particular assets where the amount subtracted from their value each year gets less as the assets get older …   Financial and business terms

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  • sum-of-the-years'-digits depreciation — Method of accelerated depreciation. Bloomberg Financial Dictionary …   Financial and business terms

  • sum-of-the-year’s-digits depreciation — Fin accelerated depreciation, conferring tax advantage by assuming more rapid depreciation when an asset is new …   The ultimate business dictionary

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